March 5, 2019

Daily Market Commentary


Canadian Headlines

  • Canadian stocks edged lower on Monday after the delay to Enbridge Inc.’s Line 3 crude oil pipeline expansion blasted shares of Canadian oil-sands producers. The S&P/TSX Composite Index fell 0.2 percent to 16,038.13. Energy was a key laggard while materials and industrials rose.
  • Hostile takeovers are never pretty, but the battle between Barrick Gold Corp. and Newmont Mining Corp. has all the appearance of an outright brawl. In the past week, leaders at the two companies have disparaged their counterparts as inept managers who have squandered assets and destroyed shareholder value. And that’s before a formal offer is even on the table. At stake is a potential $17.8 billion deal that would create the world’s largest gold producer. Newmont kicked off the fighting talk, with Chief Executive Officer Gary Goldberg calling Barrick’s proposal to buy the company “desperate and bizarre” even before Barrick publicly presented its terms on Feb. 25. Barrick CEO Mark Bristow responded in kind, saying he could run Newmont’s assets better than Goldberg does.
  • The crisis engulfing Justin Trudeau’s government is deepening, with the self-avowed feminist prime minister of Canada reeling as high-profile female lawmakers jump ship amid an ethics uproar. Treasury Board President Jane Philpott — seen as one of his team’s star performers — quit cabinet Monday amid questions about Trudeau’s efforts to snuff out corruption charges against Montreal construction firm SNC-Lavalin Group Inc. She said the scandal meant she could no longer back the government. Philpott follows Jody Wilson-Raybould, the former attorney general who says she was pressured by Trudeau and key aides into ending prosecution of the company. Another lawmaker, Celina Caesar-Chavannes, has declined to seek re-election. While she said her decision wasn’t related to SNC-Lavalin, she publicly cheered on Philpott and Wilson-Raybould.
  • Toronto’s housing market posted its biggest monthly sales decline in a year last month, prompting the city’s realtor board to call for a review of new mortgage rules it says are keeping buyers on the sidelines. Sales fell 7.7 percent on a seasonally adjusted basis to 6,212, the largest decline since February 2018, the Toronto Real Estate Board reported Tuesday. Benchmark prices, which adjust for the type of home sold, climbed 0.8 percent from the prior month to C$767,800 ($576,400). The decline in transactions so far this year extends 2018’s losses which were the worst in a decade, leading to speculation policy makers went too far when they added stress tests to mortgage-lending requirements. The regulator that imposed the rules — the Office of the Superintendent of Financial Institutions — should review them, and amortization periods for federally insured mortgages should be extended to 30 years to give buyers a break, the real estate board said.

World Headlines

  • European equities opened little changed as automakers retreated on the lack of details regarding a potential trade deal and Total SA advanced after signing an agreement with Russia’s Novatek to buy 10 percent of the Arctic LNG 2 project. The Stoxx Europe 600 Index was steady and retail, utilities and tech sectors also declined this morning. Total rose 0.5 percent.
  • Stocks were mixed on Tuesday as investors searched for direction amid lower growth forecasts and tax cuts in China and speculation that a Sino-American trade deal is near. Treasuries dipped while the dollar strengthened for a fifth day.
  • The impact of the China news on the rest of the emerging-market complex was somewhat muted, as the dollar’s fifth straight advance dominated the tone. Most currencies were on the red side of the chart, the MSCI Emerging Market index was little changed and Russia and China headed the declines in domestic bond markets.
  • Oil fell as China lowered its target for economic growth, fanning concerns about fuel demand in the world’s second-biggest economy, while OPEC member Libya restarted its biggest oil field. Futures in New York slid 0.4 percent, trimming Monday’s 1.4 percent advance. China cut its target for gross domestic product in 2019 to a range of 6 to 6.5 percent, according to an annual report by the country’s premier. Libya’s Sharara oil field resumed pumping following an unplanned shutdown in December, complicating efforts by other members of the Organization of Petroleum Exporting Countries to avert a global surplus.
  • Gold was steady near a five-week low as investors look for details of a potential U.S.-China trade deal, which is damping demand. As prices fall, investors are pulling cash from the world’s largest bullion-backed exchange-traded fund at the fastest pace in more than a year, as easing trade tensions push buyers out of safe-haven assets. The $33 billion SPDR Gold Shares ETF, or GLD, saw a net withdrawal of $496 million on Friday, the most in a single day since February 2018.
  • Iron ore may rally to $100 a ton as a supply crunch hits the market in the middle of the year, according to Citigroup Inc., which drew a comparison with a similar shock for the oil market to reinforce its point that investors haven’t yet priced in risks for the steelmaking raw material. The iron ore market has lost 4 percent of supply after Vale SA’s dam spill and mine curtailments, and the output will be hard to replace, analysts including Tracy Xian Liao said in a note. Prices may rally as China’s mills buy again after running down inventories, they said. Spot ore was at $87.15 on Tuesday.
  • The U.S. has confirmed the country is postponing “until further notice” a scheduled tariff increase on Chinese goods, the latest sign that the world’s two largest economies could be headed toward a de-escalation of their trade dispute. Formalizing a plan President Donald Trump announced last week, the U.S. Trade Representative’s office published a statement in the Federal Register stating it was “postponing the date on which the rate of the additional duties will increase to 25 percent for the products of China covered by the September 2018 Action in this investigation.” The new tariffs had been set to take effect March 1, but now the rate will remain at 10 percent, according to the statement.
  • Vodafone Group Plc plans to raise about 4 billion euros ($4.5 billion) selling bonds that will be converted into shares to fund the acquisition of some of Liberty Global Plc’s European businesses without weighing down the phone giant’s balance sheet. The two sets of sterling-denominated securities, announced Tuesday, will help pay for the $22 billion purchase of Liberty Global’s German and Eastern European units, part of the U.K. telecommunications company’s push to refocus on the continent after years scaling back its global ambitions. Vodafone Chief Executive Officer Nick Read is trying to rein in debt as he prepares to close the Liberty deal, which still needs approval from European competition authorities. The mandatory convertible bond sale plans, previously reported by Bloomberg, follow Vodafone’s issuance of almost 2.9 billion pounds ($3.8 billion) of mandatory convertible bonds three years ago.
  • Indonesia’s state-run PT Bank Mandiri is exploring a takeover of PT Bank Permata, the rival lender backed by Standard Chartered Plc, people with knowledge of the matter said. Mandiri is working with Morgan Stanley on the potential deal, according to the people, who asked not to be identified because the information is private. It is considering buying control of Permata and then merging the lender with Mandiri itself or its unit PT Bank Mandiri Taspen, known as Bank Mantap, the people said. Shares of Permata have risen 75 percent in Jakarta trading this year, giving it a market value of about $2.2 billion. Mandiri will aim to complete the potential acquisition this year if it decides to proceed, one of the people said.
  • Huawei Technologies Co., no longer content with defending itself against U.S. accusations of espionage and bank fraud, is taking the initiative with a full-blown legal offensive. The Chinese technology giant intends to file a lawsuit this week claiming the U.S. government is overstepping by banning Huawei equipment from certain networks, according to people familiar with the matter. That complaint would come just days after finance chief Meng Wanzhou sued Canada’s government for allegedly trampling her constitutional rights — an effort to discredit the case against her as she awaits potential extradition to the U.S. for bank fraud.
  • President Donald Trump has announced he plans to end key trade preferences for India and Turkey, in the latest move by the U.S. to counter what it calls unfair trade practices. Trump notified Congress on Monday in letters of his “intent to terminate” trade benefits for both countries under the generalized system of preferences. The notification starts a 60-day countdown before the president can take the action on his own authority, the U.S. Trade Representative’s Office said in a statement.
  • A stem-cell treatment put a London cancer patient’s HIV into remission, marking the second such reported case and reinvigorating efforts to cure the AIDS-causing infection that afflicts some 37 million people globally. The patient has been in remission for 19 months, the International AIDS Society said in a statement. That’s too soon to label the treatment — which used hematopoietic stem cells from a donor with an HIV-resistance gene — as a cure, researchers said Tuesday in a study in the journal Nature. Hematopoietic stem cells give rise to other blood cells. An embargo on the paper was lifted due to early reporting of the finding. The New York Times said Monday that the latest surprise success confirms that a cure for HIV infection is possible. University College London researchers made the announcement at the annual Conference on Retroviruses and Opportunistic Infections in Seattle this week.
  • U.K. Prime Minister Theresa May will face her divided cabinet on Tuesday as the attorney general and Brexit secretary travel to Brussels to seek concessions from the European Union to help win Parliament’s backing for her divorce deal. With just a week until she has to put her Brexit agreement to the House of Commons in a make-or-break vote, U.K. negotiators are reaching into obscure international treaty law to find a fix for the most toxic part of the split.
  • A money-laundering scandal involving Western financial institutions and the former Soviet Union widened, sending shares of banks lower across the continent. Raiffeisen Bank International AG led declines, dropping as much as 11 percent after Bill Browder’s Hermitage Fund filed a report to Austrian prosecutors saying the bank helped launder funds that originated in Russian criminal activity. Dutch banks fell after a report that the three largest were used by a group labeled the Troika Laundromat to move cash from Russia.
  • Philippines President Rodrigo Duterte surprised central bank watchers by naming his budget secretary on Monday as governor of the monetary authority. The peso slumped the most in more than five years. Benjamin Diokno, 70, will succeed Nestor Espenilla, who died in February after a battle with cancer. The new Bangko Sentral ng Pilipinas governor will serve the remainder of his predecessor’s six-year term ending in mid-2023. An advocate of robust state spending to spur growth when he was budget chief, Diokno is seen as favoring lower interest rates and a weaker currency. The peso was the worst performer of major Asian currencies on Tuesday, dropping 1 percent against the dollar, the biggest decline since August 2013.
  • U.S. President Donald Trump’s attempt to pressure India on trade may be intended as a symbolic shot across New Delhi’s bow, but its inopportune timing threatens broader political consequences. The Trump administration notified Congress on Monday that it wants to scrap trade concessions for India, the largest beneficiary of the so-called generalized system of preferences that impacts $5.7 billion worth of goods. The move affects just a fraction of India’s trade flows, yet it comes weeks before India’s national elections, and just as Prime Minister Narendra Modi’s government is trumpeting its foreign policy prowess and military strength following a stand-off with Pakistan.
  • Target Corp. followed up its strong holiday sales with upbeat projections for the current year, distancing itself from the struggles of mall-based department stores. The shares gained in early trading. Excluding some items, earnings per share this fiscal year will be $5.75 to $6.05, above analysts’ average estimate. Comparable sales for the full year will increase by a low- to mid-single-digit percentage.
  • Papa John’s International Inc. said the pizza chain’s founder, John Schnatter, will resign from the board following months of tensions. Schnatter, who owns about 30 percent of the shares, will help the company identify a mutually acceptable independent director to take his place, the company said Tuesday in a filing. The move comes after Starboard Value LP mounted an activist campaign at the company, making a $200 million investment and putting its chief executive officer, Jeffrey Smith, in charge of Papa John’s.
  • PG&E Corp., the bankrupt utility giant being pressed by two activist investors to remake its board, may be receiving yet another set of director nominations. An ad hoc committee of shareholders being represented by the law firm Jones Day has discussed nominating at least nine board members, people familiar with the situation said. The committee is made up of investors who’ve individually hired Jones Day and hasn’t yet decided to register as a group with the U.S. Securities and Exchange Commission, the people said, asking not to be identified because the matter is private.
  • Evonik Industries AG’s planned sale of a plastics division to Advent International for 3 billion euros ($3.4 billion) could be a credibility boost as well as a financial gain for Chief Executive Officer Christian Kullmann as he overhauls the German chemical maker. The price is at least 500 million euros higher than the figure expected by analysts, and could generate net proceeds of about 1.5 billion euros to help pay down debt, according to Sebastian Bray, an analyst at Berenberg in London. Evonik shares gained as much as 6.3 percent, the most in more than seven months.
  • Hillary Clinton said she wouldn’t run for president in 2020 but vowed to keep speaking out as she lamented how polarized the country had become. “I’m not running, but I’m going to keep working and speaking and standing up for what I believe,” Clinton told News 12 Westchester in an interview. Clinton, a former Secretary of State who was defeated by Donald Trump in 2016, said she had met privately with many of the candidates in the already-crowded Democratic field. “I’ve told every one of them, don’t take anything for granted, even though we have a long list of real problems and broken promises from this administration that need to be highlighted,” Clinton said.
  • Tesla Inc. Chief Executive Officer Elon Musk caught many employees by surprise with his announcement last week that the electric-car maker would close most stores and shift to online-only sales, according to three people familiar with the matter. Many sales personnel found out about the decision when Tesla published a public blog post Thursday afternoon, said the people, who asked not to be identified discussing sensitive matters. One of the key people involved in implementing the online sales strategy is Sanjay Shah, who has taken on additional responsibilities since his arrival from Inc. last summer, the people said. He joined Tesla as senior vice president of energy operations and continues to oversee that business.

*All sources from Bloomberg unless otherwise specified