May 1st, 2018


Daily Market Commentary


Canadian Headlines

  • Canada’s stock benchmark posted its first positive month of 2018, ending April with a gain of 1.6 percent even as shares retreated on the final trading day. The S&P/TSX Composite Index lost 61 points or 0.4 percent to 15,607.88 Monday as trading resumed after a hardware failure at TMX Group Ltd. shut down Friday’s session more than two hours early. TMX shares lost 1.7 percent. Consumer staples slid 1.5 percent and materials lost 1.2 percent. Detour Gold Corp. was the biggest decliner for the second trading day, falling 5.8 percent on top of Friday’s 32 percent loss amid rising costs.
  • Vancouver sits less than 750 miles from the Canadian oil sands but it may as well be on another continent for vehicle drivers. Gasoline prices in the Pacific Coast city hit C$1.62 a liter ($4.77 a gallon) on Monday, the highest in North America, according to Dan McTeague, a senior petroleum analyst at GasBuddy, which collects real-time fuel prices from more than 140,000 gas stations on the continent. And there’s little sign of reprieve with a weaker currency, limited refinery supplies, and a new carbon price behind the surge.



World Headlines

  • The dollar rose on Tuesday, extending its advance as it trades at the highest level in more than three months. U.S. stock futures reversed gains while U.K. equities climbed during a lackluster session in which many major markets across both Europe and Asia were shuttered for holidays.
  • Japanese equities declined after disappointing forecasts from Sony Corp. and Honda Motor Co. underlined recent investor concern that earnings support may fade. The bank and electronics groups were the biggest drags on the benchmark Topix index, as the yen was little changed against the dollar. Energy-related stocks advanced following a rise in crude prices, cushioning declines for the broader market. The Nikkei 225 Stock Average closed higher, erasing a morning decline.
  • Oil retreated as the dollar strengthened, erasing earlier gains from growing speculation that President Trump may reimpose sanctions on Iranian crude exports. Futures in New York dropped as much as 1.1 percent after rising 0.5 percent earlier. Israeli Prime Minister Benjamin Netanyahu said his country has documents that prove Iran had a program to build atomic bombs. That’s raising concern Trump may pull the U.S. out of a nuclear accord between Iran and world powers, a move that energy consultant FGE says could cut the Persian Gulf nation’s 2019 oil exports by 700,000 barrels a day.
  • Gold declined as the dollar extended gains and investors held off from making big trades before the Fed meeting on Wednesday.
  • President Donald Trump drew short shrift from key economic allies after he offered a second temporary exemption on metal-import tariffs rather than the permanent waiver most are demanding. The U.S. said late Monday it would delay until June 1 import tariffs of 25 percent on steel and 10 percent on aluminum for the EU, Mexico and Canada. The White House also said it reached agreements-in-principle with Argentina, Australia and Brazil to remove the levies, which were introduced on national security grounds.
  • U.K. manufacturing slowed more than predicted in April and consumers borrowed at the weakest pace in 5 1/2 years in March, adding to signs that the economy’s poor first-quarter performance could persist. IHS Markit said its monthly Purchasing Managers Index was at 53.9, from a downwardly revised 54.9 in March. A 17-month low, it was worse than economists had forecast and hardened expectations the Bank of England will refrain from raising borrowing costs on May 10. The pound fell as much as 0.7 percent.
  • Carlyle Group’s new leaders are facing the challenge of fueling growth as the firm tries to bulk up businesses outside of private equity to compete with fast-growing peers. The firm signaled that Carlyle is on track to raise $25 billion this year, less than the record $43.3 billion achieved in 2017. The Washington-based firm raised $7.7 billion from investors in the first quarter, according to a statement Tuesday.
  • Boeing Co. is acquiring KLX Inc. for $4.25 billion in an all-cash transaction that includes $1 billion of net debt, as the world’s largest planemaker bolsters a fast-growing new division that offers maintenance, spare parts and other services to airlines. The aircraft maker will pay $63 per share for the purchase that includes KLX’s Aerospace Solutions Group and the deal is conditional upon the successful divestment and separation of KLX’s Energy Services Group, Boeing said in a statement. The sale, also subject to approvals from regulators and KLX shareholders, is expected to close by the third quarter.
  • National Grid Plc agreed to sell its remaining 25 percent stake in the U.K.’s biggest gas distribution business to focus on assets that deliver higher growth. The U.K. network manager signed an accord with a company controlled by a consortium of Macquarie Bank Ltd. and Allianz Capital Partners, as well as other infrastructure funds, that gives the option to complete between March and October next year, National Grid said in a statement. The consortium bought 61 percent of the distribution business last year, when another option for 14 percent was also agreed.
  • BP Plc analysts praised results which beat estimates thanks to strength in both the upstream and downstream divisions, helping to send the shares to an almost eight-year high. RBC Capital Markets also lauded BP’s cash flow potential compared with peers. Still, Grupo Santander questioned whether the company’s valuation is becoming too rich, given that the oil price is still far from historical highs. The British oil giant is the latest major oil company to report earnings as investors weigh the industry’s ability to pass on the rewards of higher prices through share buybacks. Royal Dutch Shell Plc generated less cash than analysts forecast in the first quarter and its shares were hammered after Chief Financial Officer Jessica Uhl said the company wasn’t yet ready to commence a $25 billion stock repurchase program.
  • Larsen & Toubro Ltd. signs agreement to sell its electrical and automation business to Schneider Electric for 140b rupees ($2.1b), India’s biggest engineering company says in an exchange statement confirming Bloomberg News report from April 30.
  • Panasonic Corp. will pay about $280 million to resolve U.S. allegations that executives at its in-flight-entertainment unit improperly hid payments to consultants in the Middle East and Asia, some of whom did little or no work for the company. The Panasonic parent company, in a settlement announced Monday, will pay $143 million in disgorgement to the Securities and Exchange Commission, while Panasonic Avionics Corp. agreed to pay about $137 million in penalties to the Justice Department for violations of the accounting provisions of the Foreign Corrupt Practices Act.
  • The U.K. is proposing a new plan to kick-start stalled Brexit talks and make progress on the vexed issue of the Irish border as negotiations resume in Brussels this week. Brexit Secretary David Davis said he wanted to “move quickly” when talks restart Wednesday in order to reach a solution to avoid a hard land border with Ireland once the U.K. withdraws from the bloc.
  • Under Armour Inc. took another step toward regaining investors’ confidence after a two-year slump. The sporting-goods maker reported first-quarter revenue on Tuesday that topped analysts’ projections, led by gains in apparel, footwear and accessories. That helped drive the shares up as much as 4.7 percent in early trading. The results offer more signs that Under Armour is on the mend after stiffer competition — mainly from Adidas AG — slowed growth. While the stock is still way off its all-time highs of 2015, this marks the second-straight quarter the company has impressed investors.
  • Five years after selling a video-software business to Cisco Systems Inc. for $5 billion, private equity firm Permira has agreed to repurchase it back for a fifth of the price. Permira is buying Cisco’s video software business — formerly known as the NDS Group — in a bid to create a new standalone company, according to a statement Tuesday. The deal is expected to cost around $1 billion, according to a person close to the matter who asked not to be identified because the details are private. Bloomberg reported in October the NDS unit was up for sale.
  • Ganfeng Lithium Co., China’s top producer of the material, and South Korea’s LG Chem Ltd. are among parties that have approached Mineral Resources Ltd. about buying a stake in one of its Australian lithium mines, people with knowledge of the matter said. Mitsui & Co Ltd., the Japanese trading house, and Chinese battery maker Contemporary Amperex Technology Ltd. have also expressed interest in the asset as well as in securing lithium output, said the people, who asked not to be identified because the details are private. Any stake sale could value the Wodgina mine at as much as A$4 billion ($3 billion), the people said.
  • President Donald Trump says his trade actions may cause “a little pain” in the short term, and a new study shows U.S. agricultural workers could be hurt the most. The tariffs on $50 billion in Chinese imports that Trump has proposed, plus promised retaliatory duties by China, would reduce U.S. gross domestic product by $2.9 billion and cost almost 134,000 U.S. jobs, according to a studycommissioned by the Consumer Technology Association and the National Retail Federation, which oppose the tariffs. That includes more than 67,000 jobs in agriculture.
  • Sprint Corp. suffered its worst stock decline in a year, rocked by fears that a proposed $26.5 billion takeover by T-Mobile US Inc. will get rejected by antitrust enforcers. The deal, announced on Sunday, would combine two of the four biggest wireless carriers in the U.S. That sets the stage for an in-depth investigation by theJustice Department over whether the tie-up would harm competition in the industry, and some analysts are giving the transaction only 50-50 odds of passage.
  • U.S. commercial pilots are one of the few remaining strongholds of America’s diminished labor movement, but Flexjet LLC is trying to upend that conventional wisdom. Anti-union advocates are watching as a battle between the Teamsters and the jet-leasing company plays out, with one non-profit group representing Flexjet employees who are pushing to get the union out. Some 550 pilots will start voting Wednesday on whether to embrace the company’s entreaties to dump the Teamsters, which arrived at Flexjet just a few years ago. The government-supervised vote, which will be held electronically through May 30, comes two years after the pilots narrowly voted to join the union.
  • Sony Corp. shares fell the most in almost two years after the electronics maker missed profit estimates and forecast weaker sales and operating profits across most of its business units. The stock fell 6.1 percent to 5,073 yen on Tuesday in Tokyo, the biggest one-day drop since June 2016 and the first trading session after last week’s earnings. The move wiped out about $4 billion from the company’s market value, while volume was twice-as-high as the 180-day average.
  • Australia left its key interest rate unchanged at a record lowTuesday — as expected — amid the slowing of a hiring boom. Reserve Bank Governor Philip Lowe kept the cash rate at 1.5 percent, where it has stood since late 2016, as the central bank waits for inflation to strengthen. The nation’s jobs growth has declined to a three-month annualized pace of 1.2 percent in 2018 from a blockbuster 3.4 percent for the whole of last year, Westpac Banking Corp. estimates.
  • Investment opportunities are growing in Europe as a result of banks cleaning up their balance sheets, while uncertainty surrounds trade tensions with China, according to Pacific Investment Management Co.Chief Executive Officer Emmanuel “Manny” Roman. “There’s an opportunity in Europe stemming from banks,” Roman, whose firm oversaw $1.77 trillion as of March 31, said in an interview Monday at the Milken Institute Global Conference in Beverly Hills, California. “Banks basically have, in a pretty good way, cleaned up their balance sheets and sold assets that for capital reasons they didn’t need to own or couldn’t own any more. That has given opportunities in real estate and non-performing loans and sometimes in consumer credit.”

*All sources from Bloomberg unless otherwise specified