June 29th, 2018

 

Daily Market Commentary

Canadian Headlines

• From mustard to motorboats, Canada’s about to fire back against Donald Trump on its national holiday. Prime Minister Justin Trudeau will mark Canada’s 151st birthday Sunday by imposing tariffs on about C$19.4 billion ($14.6 billion) worth of U.S. imports in response to American levies on Canadian steel and aluminum that went into effect a month ago. While the tariffs alone are unlikely to derail Canada’s expansion or boost overall inflation, they add to the growing tension between two of the world’s biggest trading partners. Talks over a new North American Free Trade Agreement have stalled, and Trump has threatened to impose additional duties on autos. Canada, meanwhile, is preparing fresh duties as early as next week on non-U.S. steel imports to prevent dumping.
• Canada’s oil industry just moved one step closer to getting some relief from its pipeline woes. Enbridge Inc.’s planned $7 billion replacement and expansion of its Line 3 conduit, linking Alberta’s oil fields to refineries in the U.S., was given the green light by regulators in Minnesota on Thursday, clearing the way for the project to move ahead. The state’s Public Utilities Commission approved a certificate of need for the project in a 5-0 vote and signed off on a pathway for the conduit that hewed closely to Enbridge’s preferred route on a 3-2 vote.

 

 

World Headlines

• European stocks climbed at the open, trimming the second monthly loss after investors were spooked by escalating trade tensions between the U.S. and China. The Stoxx Europe 600 Index added 0.6 percent, with miners and tech leading the advance. The gauge is heading for a 1.3 percent drop this week, the strongest in three months. The White House this week moved forward with plans to limit Chinese investments but chose a less confrontational approach than was expected.
• Stocks rallied as global markets attempted an upbeat end to what has been a tumultuous quarter, though both European shares and U.S. equity futures pared some gains on a report President Donald Trump wants to withdraw from the World Trade Organization. U.S. futures wobbled before recovering following a report from Axios that President Donald Trump has repeatedly told top White House officials he wants to withdraw the U.S. from the WTO. Treasury yields ticked higher, while the dollar declined a second day.
• Japan’s Topix index recovered from a morning loss and rose as the yen weakened, helping the gauge rebound to a quarterly gain. Automakers were the biggest boost to the benchmark gauge today, as the yen looked set to decline for a fourth day against the dollar. The Topix gained 0.9 percent for April-June, marking a turnaround after a 5.6 percent loss in January-March and the fourth advance in five quarters. Domestic equities have been whipsawed in recent months by concern over global trade as the U.S. exchanged aggressive rhetoric over tariffs with the European Union and China.
• Oil surged this week by the most in two months as Saudi Arabia’s assurance of increased output failed to assuage concerns that disruptions from Canada to Libya and Iran will strain global markets. Futures advanced about 7 percent this week in New York, rising for a fourth quarter, as U.S. inventories slump. The U.S. Energy Department indicated on Thursday that buyers of Iranian crude could be allowed to reduce purchases gradually, softening an earlier target for a complete shut-off. Yet the gesture failed to curb prices, which remain near the highest in three years despite Saudi pledges to boost output.
• Gold’s losses in June, driven by an ascendant dollar, have put it on course for the biggest monthly drop since November 2016, when markets were roiled by Donald Trump’s victory in the U.S. presidential election. Bullion for immediate delivery traded at $1,250.98 an ounce at 9:56 a.m. in London, near the lowest since mid-December. The precious metal dropped 3.7 percent this month, while a gauge of the greenback is up for a third straight month amid escalating global trade tensions.
• Copper climbed from a three-month low as some traders closed out bearish bets to profit from the metal’s torrid run, while fundamentals pointed to a tightening spot market. The metal, often seen as a bellwether for the global economy, has taken a hit recently on concerns that escalating trade tensions will hurt demand. Prices rose 0.5 percent to $6,656 a metric ton in London Friday, after slumping as much as 10 percent from a four-year high set just three weeks ago.
• Euro-area inflation hit the 2 percent level in June for the first time in more than a year, supported by higher oil prices. The pickup in rate of price growth to just above the European Central Bank’s target was in line with the median estimate of economists surveyed by Bloomberg. The core measure, which excludes volatile components such as food and energy slowed to 1 percent, while services inflation cooled to 1.3 percent.
• Indian equities snapped a two-day decline, with key indexes capping their best quarterly performance this year, as investors expect a revival in economic growth and rebounding corporate profits to shield shares from the impact of global trade frictions and rising oil prices. The benchmark S&P BSE Sensex jumped 1.1 percent to 35,423.48 at the 3:30 p.m. close in Mumbai, up 7.5 percent in April to June period after a more than 3 percent decline in the previous quarter. Tata Steel Ltd. rose 3.5 percent, the steepest among Sensex members, trimming its decline this year to 18 percent.
• AltaGas Ltd. has gained the last major signoff it needed to finish a $4.6 billion takeover of natural gas utility WGL Holdings Inc. The District of Columbia’s Public Service Commission cleared the merger on Thursday, pending conditions that will be detailed in an order. The companies will have five days to agree to the terms of the order, which will be posted on the agency’s website. Commission Chairman Betty Ann Kane said a settlement agreement the companies reached with utility customer advocacy groups and others addresses many of the commission’s concerns.
• Xiaomi Corp. and some existing investors raised $4.7 billion after pricing a Hong Kong initial public offering at the low end of a marketed range, a person with knowledge of the matter said. The Beijing-based smartphone maker priced the sale of 2.18 billion shares at HK$17 each, the person said, asking not to be identified because the details are private. Xiaomi had offered the shares at HK$17 to HK$22 apiece. The pricing values Xiaomi at about $54 billion, roughly half the company’s initial goal.
• Hyundai Motor Co. denied a report in the Asia Times that the automaker is planning to make a takeover offer for Fiat Chrysler Automobiles NV. The report is groundless, a spokeswoman for the South Korean company said Friday. Fiat Chrysler declined to comment on the report, which was written by Peter Semler, a mergers and acquisitions journalist who runs a news service called Capitol Intelligence.
• Novartis AG will spin off eye-care company Alcon as the company’s new chief executive officer refocuses the Swiss drugmaker on prescription pharmaceuticals. Novartis also will buy back up to $5 billion of shares, using proceeds from the sale of its consumer-health joint venture with GlaxoSmithKline Plc, the Basel-based company said in a statement Friday. The spinoff of Alcon is subject to final approval by the board and by shareholders at the 2019 annual meeting, the company said.
• Prosecutors in Cologne are preparing their first indictments in a tax-evasion probe involving some of the biggest names in finance that cost the German treasury billions of euros, according to people familiar with the matter. Investigators are looking at the role of dozens of banks, brokerages, accounting companies, and law firms in the deals, and the cases involve hundreds of individuals, said the people, who declined to be identified because they’re not authorized to discuss the probe. The investigations include transactions handled by lenders including Barclays, Goldman Sachs Group, Bank of America Corp., Macquarie, and BNP Paribas, and initial indictments are likely as soon as this year, the people said.
• Deutsche Bank AG failed the first public stress test of its combined U.S. business as the Federal Reserve faulted the company’s internal controls, giving another black eye to executives trying to shore up investor confidence. The Fed found “widespread and critical deficiencies across the firm’s capital-planning practices,” according to a statement Thursday. It cited weaknesses in Deutsche Bank’s risk-management functions and data capabilities, as well as the methodology and assumptions used to forecast how the unit would fare under stress.
• The U.S. Energy Department indicated that sanctions on Iran may leave room for buyers of the Islamic Republic’s oil to cut back gradually. “These situations are going to be evaluated on a case-by-case basis,” Deputy Energy Secretary Dan Brouillette said in an interview in Paris. “So I would expect that there are some accommodations made for transition times.” His remarks run counter to statements made by the State Department earlier this week saying U.S. allies would be expected to stop their Iranian oil purchases by November.
• The Bank of Japan reduced debt purchases for a third time in June, taking advantage of the recent stability in bond yields and the yen. The BOJ lowered buying in the five-to-10 year segment by 20 billion yen ($181 million) to 410 billion yen at a regular operation. The yen — which has in the past shown a tendency to strengthen following a cut in purchases — traded weaker on Friday. Benchmark 10-year bonds were unchanged.
• German engineering group Robert Bosch GmbH plans to sell its packaging technology division that generated 1.3 billion euros ($1.5 billion) in sales last year to focus on its core business. The main pharmaceutical and food-packaging operations have insufficient synergies with the manufacturer’s other areas and can compete more effectively outside the group, Bosch said Friday in an emailed statement. It will keep Robert Bosch Manufacturing Solutions, a smaller part of the business that makes machinery for Bosch’s own automotive business.
• Bitcoin’s meteoric rise last year had many observers calling it one of the biggest speculative manias in history. The cryptocurrency’s 2018 crash may help cement its place in the bubble record books. Down 70 percent from its December high after sliding for a fourth straight day on Friday, Bitcoin is getting ever-closer to matching the Nasdaq Composite Index’s 78 percent peak-to-trough plunge after the U.S. dot-com bubble burst. Hundreds of other virtual coins have all but gone to zero — following the same path as Pets.com and other red-hot initial public offerings that flamed out in the early 2000s.
• It’s been another rough quarter for the rollout of Tesla Inc.’s Model 3. The factory was shut down at least twice for extensive upgrades, a new production line was hastily erected in a tent in the parking lot, and Tesla Chief Executive Officer Elon Musk moved from sleeping on the couch to sleeping under the desk. He was even seen personally torquing bolts on an assembly line, alongside a summer intern. Now the mad scramble to meet a self-imposed production deadline—a rate of 5,000 cars per week by the end of June—is coming to an end. The quarter concludes Saturday, and Tesla is expected to report its production figures for the last three months before the July 4 holiday.
• Less than halfway through his first year as chief executive officer of Novartis AG, Vas Narasimhan plans a third major transaction to narrow its focus on developing cutting-edge medicines. The Swiss drugmaker said Friday that it will spin off its Alcon eye-care unit while using proceeds from the $13 billion sale of its stake in a consumer-health joint venture with GlaxoSmithKline Plc, announced in March, to repurchase as much as $5 billion in shares.
• UniCredit SpA is selling at least 3 billion euros ($3.5 billion) of non-performing loans in different deals, while extending a partnership to manage troubled corporate debt as part of its cleanup strategy, according to people with knowledge of the matter. The Italian bank is reviewing final offers for 700 million euros of unsecured loans in a disposal project dubbed Narciso and plans to finalize the sale next month, said the people, who asked not to be identified because the matter is private. The lender is also seeking offers for two portfolios known as Torino and Milano, which jointly amount to about 1.8 billion euros, the people said.
• Iran’s position in the oil market is looking weaker than ever as a bruising OPEC meeting and tightening net of U.S. sanctions leave it with fewer friends and fleeing customers. Tehran is getting hit from all sides. Washington is telling buyers to stop all purchases of the country’s crude, while OPEC and its allies are bowing to U.S. pressure to raise output and fill the gap. Iran may be left with few options beyond convincing China to buy more of its oil, risking over-reliance on what’s already its biggest customer.

 

*All sources from Bloomberg unless otherwise specified