May 14th, 2019
Daily Market Commentary
- NEWS
- Canadian Headlines
- Canadian stocks continued to decline for a third day, after China retaliated with higher tariffs on a range of American goods. Pot stocks were the biggest losers as new Canada licensing rules may worsen a shortage. The S&P/TSX Composite Index fell 0.6% to 16,193. Health care and consumer discretionary sectors were the worst performers, while real estate and utilities suffered the least. Onex Corp. agreed to acquire WestJet Airlines Ltd. for C$3.5 billion ($2.6 billion), taking the Canadian carrier private in one of the buyout firm’s biggest deals.
- World Headlines
- European stocks rose on Tuesday, rebounding from yesterday’s two-month low on hopes that a trade deal between the U.S. and China is still on the cards after President Donald Trump said that he will meet China’s Xi Jinping at next month’s G-20 summit. The Stoxx 600 index was up 0.5% by 8:08 a.m. London time as cyclical sectors including autos, miners and banks recovered. Bayer dropped 4.6% and was among the worst performers on the Stoxx Health-care index after the German company was ordered to pay more than $2 billion in damages to a California couple who claimed they got cancer as a result of using the company’s Roundup weedkiller.
- U.S. stock-index futures rose on Tuesday, bouncing after the previous session’s slump, as President Donald Trump said he felt trade talks with China were “going to be very successful.” Contracts on the S&P 500 Index were up 0.4% as of 9:45 a.m. in London following Trump’s comments, in which he said it would become apparent “in about three to four weeks” whether trade talks with China were successful. Nasdaq 100 futures gained 0.6%, while those on the Dow Jones Industrial Average climbed 0.3%. Uber Technologies Inc. gained in pre-market trading, up 1.5% after shares fell 18% in its two first day as a public company.
- The MSCI Asia Pacific Index extended last week’s loss, which was the steepest since October, to fall on both Monday and Tuesday. The drop came as tensions between the world’s two largest economies escalated, with China saying it will retaliate against U.S. tariffs and officials in Washington preparing a list of $300 billion in products that will be taxed.
- Oil rose as Saudi Arabia reported drone attacks on pumping stations, the latest escalation in Middle East tensions after tankers were hit by sabotage over the weekend. Futures rose 0.6% in New York after falling 1% on Monday in tandem with equity markets. Unidentified drones attacked two pumping stations belonging to Saudi Aramco, forcing the state oil company to suspend operations in the area to assess what the kingdom said was “limited” damage. That follows damage to oil tankers anchored off the United Arab Emirates on Sunday.
- Gold held near $1,300 an ounce after rising the most in more than three months as investors assessed the U.S.-China trade war, with the world’s biggest economies planning yet more tit-for-tat tariffs. China said on Monday that the country will raise tariffs on $60 billion of U.S. goods starting June 1, in retaliation for earlier hikes from Washington. In addition, the U.S. has released a list of another $300 billion worth of Chinese goods that President Donald Trump has threatened to hit with a 25% tariff.
- The U.S. prepared to hit China with new tariffs even as President Donald Trump said he’ll meet his Chinese counterpart, Xi Jinping, at next month’s G-20 summit, an encounter that could prove pivotal in a deepening clash over trade. The U.S. Trade Representative’s office Monday released a list of about $300 billion worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that Trump has threatened to hit with a 25% tariff. If Trump proceeds with the tariffs, it would see almost all imports from China covered by punitive import duties. It also would turn the president’s trade wars into a tangible reality for many Americans as he seeks re-election.
- Economists expect the trade war between the world’s two largest economies to get worse before it gets better — culminating in a deal by year-end. President Donald Trump on Friday increased tariffs on $200 billion in Chinese goods and the Asian nation retaliated, prompting traders to price in a U.S. interest-rate cut this year and sending global stocks plunging. A Bloomberg News survey on Monday showed a majority of 40 economists see Trump following through on his threat to impose additional 25% tariffs on all remaining imports from China, with a plurality expecting those higher levies by the third quarter.
- Scout24 AG’s shareholders rejected a 4.9 billion-euro ($5.5 billion) bid for the German classifieds company from private equity firms Blackstone Group LP and Hellman & Friedman. Investors holding 42.8% of the stock accepted the 46-euro-per-share offer. The minimum threshold for the bid to succeed was 50% plus one share by the end of the acceptance period on May 9, according to a statement from the bidders on Tuesday. Blackstone and Hellman & Friedman ruled out extending or improving their offer earlier this month, signaling they were willing to walk away from the deal if investors rejected the terms. Several top-10 shareholders weren’t willing to tender their shares at the current price, people familiar with the matter said previously.
- Volkswagen AG shares climbed the most in two weeks after the German automaker revived plans for a partial offering of its Traton SE heavy-trucks division and said it may dispose of two non-core businesses. The decision to list the trucks unit came late Monday, just two months after the world’s largest carmaker shelved the proposal, citing market conditions. While it didn’t explain the about-face, VW said it hopes to list the business — which sells Scania, MAN, and VW-branded heavy trucks — by its August break.
- Fidelity Investments is cutting out its middleman — Goldman Sachs Group Inc. — when dealing with Wall Street short sellers. The money manager is bringing its stock-lending business in-house, according to a March 29 regulatory filing, instead of paying Goldman Sachs to run it. According to filings, the bank received about 10% of the revenues generated by Fidelity’s lending, primarily to firms that borrow stocks to bet against them. Fidelity, which managed $2.7 trillion of assets in March, plans to use some of the savings from the switch to boost returns in the funds that lend securities, particularly index trackers that hold thousands of different stocks. The move comes as Fidelity and its rivals compete to cut fees on index funds, luring assets that can be used for more profitable businesses like securities lending, industry analysts say.
- Morgan Stanley nabbed the biggest U.S. initial public offering of the past five years. Now it gets to field the second-guessing after Uber Technologies Inc. tumbled 18% in its first two days of trading. Across Wall Street, questions are flying: Why did bankers including Morgan Stanley’s suggest a $120 billion valuation last year that Uber couldn’t deliver? Did the syndicate led by the firm set the IPO’s price too aggressively? And did they steer too much stock to big investors who made hollow pledges to hold it long term?
- U.S. trade tariffs are already starting to push up inflation and will have a greater impact as they rise, though the U.S. economy is in a “good place” right now, according to Federal Reserve Bank of New York President John Williams. Williams said in a Bloomberg Television interview that some of his concerns have diminished after the economy “rebounded pretty strongly after a soft patch late last year.” He’s watching sentiment indicators for any signs of nervousness that could undermine the current expansion.
- Vodafone Group Plc’s dividend has cracked under the strain of falling revenue, soaring spectrum costs and a $21 billion acquisition, in a grim reality check for Europe’s struggling phone industry. The region’s biggest telecom carrier slashed its full-year dividend by 40% to 9 euro cents per share, reversing Chief Executive Officer Nick Read’s goal to keep the payout unchanged. It was the first cut since the company introduced dividend payments in 1990.
- Prime Minister Theresa May will meet with her cabinet Tuesday as she comes under increasing pressure to pull out of Brexit talks with the opposition Labour Party and set a date for her departure. The latest in a series of cross-party meetings aimed at ending the parliamentary deadlock over leaving the European Union broke up without substantive progress Monday evening, according to a person familiar with the discussions. Monday night’s meeting “took stock across the range of issues discussed in talks over the last few weeks,” May’s office said in a statement that tried to downplay its significance. “We continue to seek to agree a way forward in order to secure our orderly withdrawal from the EU.”
- Japanese investors have piled $29 billion into French bonds in the space of a month, almost as much as they spent on the debt for the rest of the year. With net purchases of 3.18 trillion yen in March, funds from the Asian nation took their net investment into French securities for the fiscal year ended March to 6.63 trillion yen, according to official data released Tuesday. That very month, the pickup on currency-hedged 10-year French notes climbed to as much as 17 basis points over 30-year Japanese bonds.
- Thailand plans to sell three 700 megahertz spectrum licenses for a total of about 53 billion baht ($1.7 billion) as part of an effort to develop fifth-generation wireless services. The sale at a fixed price of 17.6 billion baht each will take place on June 19, Takorn Tantasith, the secretary general of the National Broadcasting & Telecommunications Commission, said at a briefing Tuesday in Bangkok. The goal is for each of the top operators to buy a permit, he said.
- Bayer AG was ordered to pay more than $2 billion in damages to a California couple that claimed they got cancer as a result of using its Roundup weedkiller for about three decades, raising pressure on the company to settle thousands of similar lawsuits. It’s the largest jury award in the U.S. so far this year and the eighth-largest ever in a product-defect claim, according to data compiled by Bloomberg. The verdict prompted analysts to boost their estimates on the value of a settlement.
- Nissan Motor Co. is looking to invest in a Chinese electric-car startup, according to people familiar with the matter, to provide it with a greater footprint in the world’s biggest market for new-energy vehicles. The Japanese company wants to buy a stake of as much as 25% in a Chinese electric-vehicle maker, and it has narrowed the potential targets to startups including WM Motor Technology Co., Zhejiang Hozon New Energy Automobile Co. and CHJ Automotive Co., said the people, asking not to be named as the plan isn’t public.
- Equity markets globally have been slumping and the year’s biggest initial public offering stumbled out of the gate. For Volkswagen AG, Thyssenkrupp AG and Anheuser-Busch InBev NV, those are no obstacles to planning massive IPOs. All three companies have announced stock offerings in the past week for businesses with valuations in the tens of billions of dollars. Executives are betting that the market turmoil will have calmed down, and investors will have forgotten Uber Technologies Inc.’s disastrous IPO, by the time they’re ready to price those sales.
- San Francisco may make a multibillion-dollar bid within months for some assets owned by California power giant PG&E Corp. Mayor London Breed told the utility owner in March that the city may submit a formal offer for its electric distribution system in San Francisco “within the coming months” if the acquisition proves feasible, the San Francisco Public Utilities Commission said in the report Monday. The agency estimated that the fair market value of the assets is “in the range of a few billion dollars.”
- CK Asset Holdings Ltd., one of Hong Kong’s biggest developers, is considering selling its stake in a large project in Shanghai, according to people familiar with the matter. The landmark project — Upper West Shanghai in the city’s northwestern Putuo district — was billed as one of the largest mixed-used developments in the financial hub when construction started in 2011. A sale could value the entire project at about 20 billion yuan ($2.9 billion), the people said, asking not to be identified because the discussions are private. CK Asset has a 60% interest.
- Fidelity National Information Services Inc. has started what may by the largest company debt sale in Europe this year, as it prepares to buy Worldpay Inc. for $34 billion. The payment-processing provider is selling six euro notes as long as 20 years and sterling bonds, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified. Jacksonville, Florida-based FIS also included a potential dollar offering in its roadshow.
- Walmart Inc. wants to one-up Amazon.com Inc. in the fight for online shoppers. The world’s largest retailer is rolling out a next-day delivery service to counter Amazon’s recent move to speed shipment times for top customers to just one day from two. Starting Tuesday, Walmart customers in Phoenix and Las Vegas who buy more than $35 worth of goods will get free one-day shipping. The offer, which Walmart had hinted was in the works and will be applied to as many as 220,000 items, will extend to Southern California in the coming days and will reach about three-quarters of the U.S. by the end of the year.
- Bitcoin climbed above $8,000, extending its longest winning streak since 2013 and giving fresh momentum to a cryptocurrency market that crashed only last year. Just hours after leaping 25% on Monday with no apparent explanation, the largest digital token added as much as 5.9% on Tuesday. That helped push the crypto universe’s total market value to almost $250 billion — a level not seen since last August — as the 10 most-traded tokens also advanced.
*All sources from Bloomberg unless otherwise specified