May 24th, 2018

 

Daily Market Commentary

Canadian Headlines

• The S&P/TSX Composite Index lost 11 points or less than 0.1 percent to close at 16,133.80 Wednesday, down a second day after an 11-day winning streak. Consumer staples and utilities stocks outperformed, adding 1.6 percent and 0.8 percent, respectively. Energy fell the most, down 0.7 percent, as crude flirted with this week’s low and Scotia Howard analyst said the oil rally may pausebefore a June OPEC meeting.
• A surge in business loans at Royal Bank of Canada and Toronto-Dominion Bank is helping lessen the sting of a mortgage slowdown. Royal Bank’s balances from business lending surged 22 percent to C$97.2 billion ($75.6 billion) in the fiscal second quarter from a year earlier, the Toronto-based lender said Thursday. Growth in that area, along with a 25 percent jump in wealth-management earnings, helped Royal Bank post profit that beat analysts’ estimates. Toronto-Dominion’s business loans rose 9.8 percent to C$71.8 billion.
• TD Bank posted a more than 17 per cent increase in net income in the second quarter compared with a year earlier, blowing past market expectations. The Toronto-based lender reported net income attributable to common shareholders of $2.85 billion or $1.54 per diluted share for the quarter ended April 30, up from $2.43 billion or $1.31 per diluted share in the same period a year earlier.
• The Canadian government blocked a proposed takeover of construction firm Aecon Group Inc. by a unit of China Communications Construction Co. in the latest move by Western nations weighing national security concerns associated with Chinese investment. Prime Minister Justin Trudeau’s government announced its decision Wednesday after launching a security review of the C$1.2 billion ($934 million) deal, according to a statement from Innovation Minister Navdeep Bains obtained by Bloomberg News. Aecon later confirmed the takeover offer by CCCC International Holding Ltd. had been rejected. A CCCC spokesman in Beijing said the company couldn’t immediately comment.
• The C$35 billion ($27 billion) Canada Infrastructure Bank has found its chief executive officer, with Pierre Lavallee soon taking the helm of an agency Prime Minister Justin Trudeau hopes will spur widespread spending on things like transit and trade links. Lavallee will be announced Thursday as the new president and CEO of the Toronto-based bank and is scheduled to start on June 18. He was formerly senior managing director and global head of investment partnerships for the Canada Pension Plan Investment Board, where he spent six years.

 

 

World Headlines

• European stocks are steady in early trade, taking a breather after Wednesday’s selloff, while shares in automakers retreat following news that Trump’s administration has started an investigation into whether car and truck imports threaten national security, which could lead to new U.S. tariffs on the sector. The Stoxx 600 is little changed, after dropping 1.1% in the previous session. The auto sector index SXAP is down 1.2%.
• It’s been a torrid week across markets so far, with investors forced to navigate escalating geopolitical and trade risks, from Trump’s decision to back away from an agreement with China to North Korea warning of a “nuclear-to-nuclear showdown.” Questions are swirling around the Italian populist government’s economic policies, while Brexit negotiations loom large over British assets. Amid the noise, the impact of somewhat dovish minutes from the Federal Reserve appeared to fade. Meanwhile, emerging-market currencies rose despite the lira move, and developing-nation stocks also advanced.
• Losses worsened for Asian shares, with a fourth day of declines pushing the regional benchmark gauge further into a two-week low, as a stronger yen and U.S. investigation into car and truck imports weighed on Japanese stocks. The MSCI Asia Pacific Index dropped 0.2 percent as of 3:34 p.m. in Hong Kong, with Toyota Motor Corp.’s retreat contributing the most to the slide.
• Oil declined for a third day in New York after Russia’s energy minister reiterated that OPEC and its partners will discuss phasing out supply curbs when they meet next month. West Texas Intermediate futures slipped 0.7 percent, extending their pullback from the three-year high reached on May 22. Russia and the Organization of Petroleum Exporting Countries will discuss whether it’s appropriate to scale back output cuts, Energy Minister Alexander Novak said in St. Petersburg, adding that Russia has a common position with Saudi Arabia that any decision will be guided by market conditions.
• Gold edges higher amid mounting geopolitical and trade risks after President Donald Trump ordered probe to consider tariffs on auto importsand North Korea again threatened to cancel planned summit with U.S.
• The Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies, dramatically ratcheting up U.S. scrutiny of red-hot markets that critics say are rife with misconduct, according to four people familiar with the matter. The investigation is focused on illegal practices that can influence prices — such as spoofing, or flooding the market with fake orders to trick other traders into buying or selling, said the people, who asked not to be identified because the review is private. Federal prosecutors are working with the Commodity Futures Trading Commission, a financial regulator that oversees derivatives tied to Bitcoin, the people said.
• Samsonite International SA, the world’s largest branded-luggage maker, tumbled the most since 2012 after short-seller Blue Orca Capital questioned the company’s accounting and corporate governance. Samsonite concealed slowing growth with debt-funded acquisitions and inflated profit margins with dubious accounting linked to its takeovers, Blue Orca, founded by former Glaucus Research Group research director Soren Aandahl, alleged in a report on Thursday. A spokeswoman for Samsonite, which is based in Mansfield, Massachusetts, and traces its roots back to the early 1900s, said she couldn’t immediately comment on the report.
• North Korea dismantled its main nuclear-weapons test site, even as the regime renewed threats to cancel a planned summit with PresidentDonald Trump next month over the U.S.’s approach to talks. North Korea said it carried out the demolition of a nuclear testing facility in the country’s mountainous northeast Thursday, the Associated Press reported. The regime said the detonations — witnessed by a selection of foreign journalists — were intended to put out of use the tunnels used for all six of the isolated nation’s nuclear tests.
• India’s Prime Minister Narendra Modi has an oil problem. And it’s set to worsen with Saudi Arabia rooting for the commodity to push through the $80 barrier. Modi’s government made the most of cheap oil by substituting any fall in prices with taxes that kept retail fuel rates unchanged for consumers and boosted the federal revenue. Now, pressure is mounting to forego some of that windfall as pump prices of gasoline and diesel hit records, likely marring the ruling party’s prospects at the national ballot in 2019.
• President Donald Trump said he won’t back any immigration bill out of Congress that doesn’t include both funding for a wall and increased border security, as some Republican lawmakers try to force a vote on a measure designed to shield young people from deportation. “Unless it includes a wall, and I mean a wall, a real wall, and unless it includes very strong border security, there’ll be no approvals from me, because I have to either approve it or not,” Trump said during an interview on the Fox News program “Fox & Friends.” “There is a mood right now to get better, stronger border security.”
• German Chancellor Angela Merkel said China risks facing investment “constraints” in Europe unless it further opens its home market, even as both sides pledged to defend global institutions against U.S. attacks. Standing alongside Chinese Premier Li Keqiang in Beijing, Merkel told reporters Thursday that both are “committed to free and fair trade.” For his part, Li signaled backing for European efforts to uphold a nuclear accord with Iran that President Donald Trump is abandoning.
• The relief brought by Turkey’s decision to boost interest rates at Wednesday’s emergency meeting didn’t last long, as the lira resumed its nosedive against the dollar. The currency declined as much as 3.5 percent on Thursday, the most in emerging markets, amid concern the unscheduled rate increase will provide only temporary support. It had reversed losses of as much as 5.2 percent Wednesday after the central bank raised its late liquidity window rate by 300 basis points.
• Embattled coal and nuclear power-plant operators stand to get a lot more money to provide capacity to the biggest U.S. electricity grid — if they can hold on for another three years. Generators are going to make $140 a megawatt-day for the year starting in June 2021, 83 percent more than the prior year, according to the results Wednesday of an auction by PJM Interconnection LLC. It was the first increase in three years and 19 percent more than the highest analyst estimate compiled by Bloomberg. They ranged from $75 to $118.
• Russia will discuss with OPEC in June whether it’s appropriate to gradually scale back output cuts, while reiterating that any decision must be guided by the state of the market, said Energy Minister Alexander Novak. As the minister spoke to reporters at the St. Petersburg International Economic Forum on Thursday, some of Russia’s largest oil producers called for more flexibility after almost 18 months of output curbs. The cuts have achieved their goal and crude prices near $80 a barrel are high enough, said the bosses of Lukoil PJSC and Gazprom Neft PJSC.
• China is planning to reduce import duties on consumer goods ranging from food to cosmetics, people familiar with the matter said. The tariff cuts, which would be effective as early as July 1, would apply to significantly more product lines than a similar reduction on around 200 items announced last year, said the people, who asked not to be identified as the discussions aren’t public. This week, Beijing announced the reduction of tariffs on car imports to 15 percent from 25 percent, also effective as of July 1.
• BYD Co. won its biggest overseas order for monorail systems in an affirmation of efforts by the Chinese electric-vehicle maker to revive profit growth. The company signed a 2.5 billion-Brazilian real ($689 million) order this week to build a light transit system in Salvador, Brazil, Stella Li, a senior vice president at BYD, said in a telephone interview Thursday. The Shenzhen-based firm is also in discussions for as many as eight monorail deals in the Americas, including the U.S., and expects to nail at least two this year, Li said.
• The European Commission formally unveiled a proposal to facilitate the development of sovereign bond-backed securities, or SBBS, as it seeks to shield Europe’s bond market from future crises in the face of German opposition to any instruments that would mutualize public debt. The plan, which comes as Italian bond yields jumped to multi-year highs, foresees the creation of securities backed by sovereign bonds from all euro-area member states according to their economic weight. The securities would be issued and bought by private investors, who would also bear the risks from losses in the underlying pool, according to the proposal.
• The reaction was swift and severe. Petrobras Chief Executive Officer Pedro Parente woke up this morning to a wave of downgrades from the same Wall Street analysts who had been praising him since he took the helm of the state-controlled oil producer two years ago. Bank of America Merrill Lynch, Morgan Stanley and Credit Suisse Group AG all cut their recommendations after Parente announced a 10 percent cut in wholesale diesel prices late Wednesday to help the government negotiate an end to a nationwide truckers strike that has wrought havoc on Latin America’s largest economy.
• Best Buy Co. started the year on a high note, providing a boost as the retailer rolls out new offerings to grab more of its customers’ technology spending. Same-store sales in the U.S. rose 7.1 percent last quarter, more than double analysts’ estimates and the biggest first-quarter jump since 2004. Earnings in the quarter also topped projections, sending the shares up in early trading Thursday.
• Deutsche Bank AG’s new chief executive officer is wasting no time overhauling Germany’s biggest lender more aggressively than his predecessors. Investors are wondering if it’s too little, too late. Christian Sewing has committed to cutting almost 10 percent of jobs, retrenching in costly trading businesses and effectively giving up on competing head to head with Wall Street firms. The plans so far have failed to convince: Deutsche Bank shares declined as much as 3.3 percent on Thursday and are down about 7 percent since Sewing took over from John Cryan in early April.
• Dutch payment-processing firm Adyen BV plans an IPO in Amsterdam this year as it bets interest in the fast-growing industry will trump a dire market for new share offerings. Adyen, backed by Silicon Valley billionaires, will offer existing shares equal to about 15 percent of the total and has hired Morgan Stanley and JPMorgan Chase & Co. to coordinate the IPO, the company said in a statement on Thursday. The sale could to raise as much as 1 billion euros ($1.2 billion), valuing the company at 5 billion euros ($5.9 billion) to about 10 billion euros, Bloomberg reported earlier.
• Magnit PJSC, Russia’s second-largest retailer, is a little less tied to the Russian government. State-run lender VTB Group sold an 11.8 percent stake to local investment firmMarathon Group, the bank announced Thursday. The parties didn’t disclose a valuation for the stake, which was worth about $1 billion at Wednesday’s Moscow closing price. VTB is to retain a 17.3 percent stake in Magnit.

 

 

 

*All sources from Bloomberg unless otherwise specified