May 25th, 2018
Daily Market Commentary
- Canadian stocks rose, with the benchmark index creeping back toward its highest level since January following a two-day decline. The S&P/TSX Composite Index rose 0.1 percent to 16,162 in early trading. Materials and information technology stocks gained the most, adding 1 percent and 0.7 percent, respectively. Health care and energy fell the most.
- Investment manager Partners Group led a consortium of investors to acquire Techem GmbH in a deal that values the German smart metering business at about 4.6 billion euros ($5.4 billion), including debt. Partners Group will be joined by Caisse de depot et placement du Quebec and Ontario Teachers’ Pension Plan as well as Techem’s management team on the transaction, according to a statement on Friday. They’re buying the business from Macquarie European Infrastructure Fund 2, which acquired the asset in 2008. The deal is scheduled to be completed in the third quarter.
- Mexico told the U.S. that it can be flexible on automotive wages and content in exchange for President Donald Trump’s negotiators withdrawing some of their other toughest demands, according to two people familiar with the talks. Mexican negotiators have offered the U.S. that at least 20 percent of a car’s value would come from higher-paid workers, according to one of the people, who asked not to be named talking about closed-door talks. In the previous proposal, Mexico said higher wages were just one option that companies could choose for meeting updated Nafta duty-free export rules, along with sourcing metal from the region.
- European stocks rise in early trade, bouncing back from the previous session’s losses after North Korea said it was surprised by Trump’s decision to cancel a June 12 summit and it remains willing to meet with the U.S. at any time. The Stoxx 600 gains 0.4%, and the Euro Stoxx 50 adds 0.3%, rebounding after testing its 200-DMA on Thursday.
- U.S. index-futures inch up following European equities higher as investors assess President Donald Trump’s latest decisions on trade policy, geopolitics. The yield on 10-year Treasuries drops and oil falls.
- Japan’s Topix index posted its biggest weekly decline in nine weeks after U.S. President Donald Trump canceled his planned summit with North Korea’s leader next month. The Nikkei 225 Stock Average had its first weekly slide since March after Trump called the collapse of his meeting with Kim Jong Un a setback for both North Korea and the world. Automakers and banks were the biggest drags on the Topix on Friday, while land transportation and food shares rose.
- Oil fell below $70 a barrel in New York for the first time in two weeks as Saudi Arabia said it expects OPEC and its partners to increase supplies later this year, easing some of the restraint they’ve shown since early 2017. U.S. futures fell as much as 2.1 percent, set for the first weekly drop this month. There will likely be a gradual supply boost in the second half, Saudi Arabian Energy Minister Khalid Al-Falih said in St. Petersburg, as OPEC and its partners acknowledge consumer anxieties after prices reached a three-year high. The comments were echoed by his Russian counterpart, Alexander Novak.
- Gold futures posted the biggest gain in seven weeks as the dollar fell and Donald Trump’s decision to cancel a meeting with North Korea’s leader pressured equities lower, boosting demand for the metal as a haven.
- Consumer spending in the U.S. is probably well-equipped to ride out near-$3 gasoline that’s made for the costliest driving in four years, though an extended and more pronounced increase could prove more challenging for the economy. The price of regular-grade fuel has climbed 47 cents a gallon, or 19 percent, since the start of 2018, according to motoring group AAA. Pricier seasonal fuel blends and increased summer demand as families go on vacation have pushed the cost of gasoline to its highest since 2014. Nonetheless, the movement in prices from January through May is about in line with the average over past five years.
- The companies sponsoring a 9.5 billion-euro ($11 billion) link that will feed Russian natural gas into Germany said work will progress in spite of a threat from the U.S. to sanction the project. Gerhard Schroeder, the former German chancellor who is chairman of the Nord Stream 2 project, said on Friday pipeline laying will begin “fairly soon.” The Chief Executive Officer of Uniper SE, Russia’s biggest gas consumer in Germany, said U.S. sanctions would be unfair for a link that’s so important to Europe’s energy supply.
- India’s regulator unearthed $1.5 billion of bad loans from the books of IDBI Bank Ltd., as authorities grind on with an unprecedented clean up of the nation’s lenders. An audit conducted by the Reserve Bank of India showed soured debt in the year ended March 2017 was 102.8 billion rupees ($1.5 billion) higher than IDBI’s own assessment, the bank said in a statement on Friday. It also reported a loss of 56.6 billion rupees for the quarter ended March 31, 2018.
- China is considering encouraging state-owned carmakers to bring in private automakers as investors as it seeks to create an industrial champion to compete with global peers such as Toyota Motor Corp. and Volkswagen AG, according to people with direct knowledge of the matter. A policy paper outlining the proposal is being studied by government departments, said the people, who asked not to be identified disclosing private discussions. The plans are preliminary and could change depending on feedback from different agencies and industry players, they said. The proposals don’t specify what level of stake is permitted.
- North Korea said it was surprised by President Donald Trump’s decision to cancel a June 12 summit with Kim Jong Un and it remained willing to meet with the U.S. at any time. First Vice Foreign Minister Kim Kye Gwan said Friday that his country still wanted to pursue peace and said it would give Washington more time to reconsider talks. He added that North Korea “inwardly highly appreciated” Trump for agreeing to the summit, and hoped the “Trump formula” would help lead to a deal between the adversaries.
- Wind power producers in China sank as the government introduces new policies requiring companies to bid for new projects from 2019 amid efforts to boost competition in the sector. Shares of China Longyuan Power Group tumbled as much as 11 percent in Hong Kong, the biggest drop in four years. Huaneng Renewables Corp. lost as much as 8.6 percent, the most since September 2016, while Xinjiang Goldwind Science & Technology Co. fell as much as 7 percent. The National Energy Administration will require wind power suppliers to bid for the construction of onshore and offshore wind farms from 2019, according to a statement on its website, signaling a shift away from fixed rates. The projects will have to comply with grid conditions for power transmission, and keep idle rates to less than 5 percent. Existing developments won’t be affected.
- Johnson Controls International Plc is drawing interest from private equity firms KKR & Co. and Apollo Global Management LLC for its power solutions business that could value the unit at as much as $12 billion, people familiar with the matter said. The firms were part of a select group of financial sponsors, which also included CVC Capital Partners and Advent International, that were invited to what’s known as a gold card meeting with Johnson Controls management last week to assess their interest in the unit, the people said.
- Saudi Arabia and Russia, the oil producers who led the effort to shrink a global glut, said they are discussing easing output curbs for the first time. While scaling back the supply caps is “on the table,” no decision has been made, Saudi Arabian Energy Minister Khalid Al-Falih said in an interview early Friday morning in St. Petersburg. The Organization of Petroleum Exporting Countries and its partners will in June discuss loosening the curbs that began in 2017, Russian counterpart Alexander Novak said at the same interview after a meeting between the two officials.
- What started as a business disagreement between two Asian exchanges has become a source of growing concern for international investors. A fight between Singapore Exchange Ltd. and National Stock Exchange of India Ltd. over derivatives contracts is threatening to end a popular way of hedging Indian shares. The battle, which went to court in Mumbai this week, has left traders scrambling to find new ways to manage their exposure to the $2.3 trillion market, one of Asia’s biggest.
- Xiaomi Corp. aims to seek formal Hong Kong stock exchange approval on June 7 for an initial public offering that could raise about $10 billion, people with knowledge of the matter said. The Beijing-based smartphone maker hopes to price the share sale late next month if its application is approved by the bourse’s listing committee, according to one of the people. The timing for the so-called listing hearing could slip, depending on the volume of questions from the exchange ahead of the meeting, another person said, asking not to be identified because the information is private.
- BT Group Plc, the former phone monopoly under pressure to return to growth, is considering options for its U.K. fixed network after getting informal interest from private equity and infrastructure investors, according to people familiar with the matter. The British company is evaluating inbound proposals including minority and majority stake purchases in Openreach, the national phone and broadband grid it still controls, said the people, who asked not to be identified as the matter is private. The deliberations are early stage and the company may decide against pursuing any of the ideas, they said. BT shares rose the most in three months.
- Two of the world’s most influential proxy advisory firms are split over whether investors should approve a $3.3 billion merger between two units of CJ Group, South Korea’s largest media-to-entertainment conglomerate, ahead of a vote next week. Institutional Shareholder Services Inc. recommended CJ E&M Corp. and CJ O Shopping Co. shareholders vote against the plan at their scheduled meetings on May 29, citing the negative market reaction to the proposal.Glass Lewis & Co. supported the merger, saying the financial terms were fair and that shareholders would benefit from a simplified corporate structure. Both ISS and Glass Lewis issued their reports last week.
- Leverage on buyout loans in Asia is climbing close to levels last seen before the global financial crisis as the region’s lenders stomach higher risk in their pursuit of yield. While the typical senior leverage ratio for Asian LBO loans was 3.5 to 4 times earnings, multiples of 4.5 to 5.5 are becoming more common, said Adnan Meraj, Hong Kong-based co-head of Asia Pacific Syndication & Leveraged Finance at Bank of America Merrill Lynch. There’s at least $9.2 billion of such financing in the pipeline, set to add to volume that’s already up 25 percent this year, data compiled by Bloomberg show.
*All sources from Bloomberg unless otherwise specified