May 2nd, 2018


Daily Market Commentary


Canadian Headlines

  • Suncor Energy Inc. is barreling ahead on the ramp-ups of the Fort Hills and Hebron oil megaprojects as its refining operations protect it from the pipeline shortages and lower prices that are slamming competitors. Canada’s largest oil producer by market value said Tuesday that Fort Hills, an oil-sands mine in Alberta, and Hebron, an offshore development along the nation’s Atlantic coast, are both ahead of schedule. The progress helped Suncor post output of 689,400 barrels of oil equivalent a day last quarter, topping analysts’ 685,630-barrel average estimate.
  • U.S. Trade Representative Robert Lighthizer said he wants to reach a deal in coming weeks to revamp the North American Free Trade Agreement, adding a sense of urgency to trilateral negotiations that have run for over eight months. Lighthizer is scheduled to meet with his Mexican and Canadian counterparts on Monday after he returns from a trip to China. The three have been holding regular talks since August, and last week gathered in Washington for several days of negotiations. While Canada’s government highlighted a series of major sticking points that still remain in a call with stakeholders Tuesday, Lighthizer struck an upbeat tone.



World Headlines

  • Stoxx 600 extends early gains, rises as much as 0.7% to reach highest level since early February, buoyed by a recent slide in the euro and by a bounce in mining stocks that are rising along with metal prices as Chinese exchanges re-open after a two-day holiday.
  • Investors are turning their focus to the Federal Reserve decision and the Treasury’s announcement of its quarterly refunding plan, both due later on Wednesday. They’ll be watching closely for any potential impact on yield spreads, and in particular for any signals that policy makers may consider pushing for three additional interest-rate increases in 2018.
  • Asian equities fell for a second day as investors await the outcome of a Federal Reserve meeting. Most stock markets reopened after a holiday on Tuesday. The MSCI Asia Pacific Index fell 0.3 percent to 173.33 as of 4:26 p.m. in Hong Kong, as telecom, healthcare and industrial shares led the retreat. The Fed is set to wrap up a two-day meeting that may give investors a signal how many times the U.S. will raise interest rates this year.
  • Oil traded near $68 a barrel as traders weighed increasing U.S. stockpiles against growing expectations of renewed sanctions on Iran’s crude trading. Futures in New York increased 0.6 percent after a 1.9 percent drop on Tuesday. U.S. crude inventories rose 3.43 million barrels last week, the American Petroleum Institute was said to report. That compares with a 1.23 million-barrel gain in a Bloomberg poll of analysts ahead of Wednesday’s government data. The oil market has priced in a more than 50 percent probability that the U.S. will sanction Iran, according to Standard Chartered Plc.
  • Gold rebounds as dollar hands back gains after setting a four-month high, and investors weigh uncertainty over whether U.S. will withdraw from Iranian nuclear accord.
  • Euro-area economic growth slowed in the first quarter, posing a challenge for the European Central Bank as it contemplates paring back monetary stimulus measures. The 0.4 percent expansion was the weakest in six quarters and followed a reading of 0.7 percent at the end of 2017. While temporary factors such as bad weather played a part, another report showed manufacturing continued to cool this quarter and some firms are concerned about the stronger euro.
  • Competition in Hong Kong’s $292 billion time-deposit business is intensifying as a surge in short-term borrowing costs forces banks to seek other avenues of funding. With interbank rates climbing ahead of expected Federal Reserve hikes and a slew of potential initial public offerings, lenders from Standard Chartered Plc to Industrial & Commercial Bank of China (Asia) Ltd. have been raising time-deposit rates to more than 2 percent in some cases. China Citic Bank International Ltd. now pays as much as 3 percent to new savers who transfer their funds into three-month Hong Kong dollar deposits.
  • Shares of Samsung Biologics Co. fell almost 20 percent in Seoul, wiping away more than $5 billion in market value, as one of South Korea’s largest biotech companies said a regulatory agency had conducted an accounting audit. Wednesday’s drop, the biggest intraday decline since Samsung Biologics’ initial public offering in 2016, came after Seoul Economic Daily reported Tuesday that the Financial Supervisory Service had made a preliminary determination that the company violated accounting standards by exaggerating the value of its affiliate Samsung Bioepis before its IPO.
  • Nikola Motor Co., a hydrogen truck startup, is suing Tesla Inc. for $2 billion, alleging billionaire Elon Musk’s company willfully infringed on its patents. The lawsuit filed by Nikola Corp. on Tuesday in Arizona alleged that Tesla copied its designs for an electric semi truck unveiled in November. The four-year-old startup alleges similarities in the front fenders, wraparound windshields, doors, and other aerodynamic features of its Nikola One hydrogen-electric hybrid truck, revealed in 2016.
  • Hitachi Ltd. Chairman Hiroaki Nakanishi will meet Prime Minister Theresa May on Thursday to discuss how to advance its plans to build two nuclear power plants in the U.K., an official familiar with the matter said. Tokyo-based Hitachi has been urging the government to take a stake in the projects, said the official, who declined to be named because the discussions are private. It’s also seeking a guarantee on the power price it will receive from the first planned reactors at its Wylfa Newydd site in north Wales, the official said. Business Secretary Greg Clark will attend the meeting with May.
  • Hong Kong regulators are taking measures to ensure there will be enough offshore yuan available to investors when Chinese shares are added to MSCI Inc. benchmarks on June 1. With an estimated $17 billion expected to flow into mainland bourses, much via links with Hong Kong’s stock market, the city’s de facto central bank is seeking to avoid a liquidity crunch. Among the steps, it’s asked participants not to hoard yuan and is encouraging firms with mainland operations to bring currency to the city, according to industry officials in the city briefed on the plans. The Hong Kong Monetary Authority has been talking to banks about inclusion day for several months, an agency spokeswoman said by email. There is a yuan liquidity facility that can support the market if needed, and a 400 billion yuan ($63 billion) currency-swap arrangement with the People’s Bank of China, which can serve as a backstop.
  • U.S. factories are having too much of a good thing, with surging demand leading to system-wide bottlenecks that are weighing on business and potentially the broader economy. The latest evidence came Tuesday in the Institute for Supply Management’s April manufacturing survey, which showed that despite robust orders, production cooled as suppliers’ delivery times lengthened, backlogs mounted, materials prices picked up and hiring slowed. Exacerbating the issues are policies including the Trump administration’s tariffs on imported metals, as well as new trucking regulations that have delayed deliveries.
  • There’s a downside to oil prices being up that could cost the industry more than $7 billion. When crude markets slumped, explorers used hedging contracts to lock in payments for future barrels to ride out prices that fell as low as $27 a barrel in 2016. Now, as global tensions and OPEC supply cuts drive prices toward $70 in New York, those financial insurance policies have become a drag on profits, limiting some companies from cashing in on the rally.
  • Much like the makers of designer handbags and craft beers, Delta Air Lines Inc. is finding it pays to pursue the high end. Flying has gotten cheaper across the board in recent years, but Delta is beating its major U.S. rivals at retaining a premium on tickets sold to bigger-spending business travelers. The highest 10 percent of one-way Delta fares started at $521 last year, down 12 percent from 2014, according to ICF Inc., which crunched the numbers for Bloomberg. United Continental Holdings Inc.’s fares in that category fell 16 percent, while comparable ticket prices at American Airlines Group Inc. dropped 21 percent.
  • A surge in prices of crude oil, India’s biggest import item, and a sharp weakness in the rupee are pushing some economists to change their minds on when the central bank will raise interest rates. Deutsche Bank AG and DBS Bank Ltd. are among lenders who have brought forward their rate increase calls, more in line with what the markets have been predicting — that the Reserve Bank of India may be forced to raise rates faster than what most analysts are forecasting.
  • The Trump administration sought to temper expectations for a swift breakthrough on trade issues with China as a delegation of senior U.S. officials prepares to visit Beijing this week. “It’s a big, big challenge. There’s a very different system over there and it’s a system that in all honesty has probably worked pretty well for the Chinese,” Trade Representative Robert Lighthizer said Tuesday at an event at the U.S. Chamber of Commerce in Washington. “It has not worked well for us.”
  • Fortis Healthcare Ltd. shares extended their best monthly gain in more than three years after IHH Healthcare Bhd. and two Indian tycoons revised their offers in the race for the country’s second-largest hospital chain. The stock climbed 4.3 percent to 158.90 rupees, its highest close since March 15. Fortis shares gained 24 percent last month, the best performance since February 2015. Asia’s most-valuable hospital operator has offered to make an immediate equity investment at 175 rupees ($2.6) a share, up from its previous bid of 160 rupees apiece, and subsequently invest more after completing a due diligence.
  • Xerox Corp.’s top executive and six board members agreed to step down in a victory for Carl Icahn’s battle against the company’s planned $6.1 billion takeover by Fujifilm Holdings Corp. The resignations, which include Chief Executive Officer Jeffrey Jacobsonand Chairman Robert Keegan, are part of an agreement with activist investors to settle a lawsuit that will put in place executives close to Icahn. Keith Cozza, CEO of Icahn Enterprises, is expected to be elected chairman while John Visentin, who has been a consultant to Icahn in the feud against Xerox, is slated to be appointed as its new CEO.
  • China weakened its daily currency fixing by more than traders and analysts had expected before high-ranking U.S. officials arrive in the country to discuss trade issues. The People’s Bank of China cut the reference level to 6.3670 per dollar, weaker than the average estimate of 6.3610 in Bloomberg survey of 21 traders and analysts. The deviation is the biggest since Feb. 7 and continues a pattern set in April when the fixing was weaker than expected on all but one day, according to Bloomberg calculations.
  • General Electric Co. said it expects a negative decision, which could bring a fine, from a European Union antitrust investigation that alleges it misled a merger review last year, the company said in a regulatory filing. “We anticipate that the EC will issue a decision that we could appeal to the General Court of the European Union,” GE said in the filing. An EU finding that GE breached merger rules could lead to a fine of up to 1 percent of annual revenue, it said. The EU is clamping down on companies that fail to follow rules that allow it to police whether takeovers and mergers will harm competition. Altice NV was fined 124.5 million euros ($149 million) for moving ahead with a takeover before it had EU merger approval. Facebook was fined 110 million euros last year for misleading officials during a merger review.
  • Rio Tinto Group, the world’s No. 2 mining company, will examine further sales of unwanted operations, extending an exit drive that’s reaped $5 billion so far this year. “We will continue to re-engineer, to strengthen our portfolio of assets,” Chief Executive Officer Jean-Sebastien Jacques told reporters Wednesday in Melbourne after its annual meeting. “It’s not only about selling for value some of the assets, it’s about investment as well — we are creating new assets.” Jacques earlier told shareholders the London-based company will exit assets or projects that no longer fit. So far this year, Rio has agreed to sell aluminum assets in Europe and also stuck agreements worth more than $4 billion with competitors including Glencore Plc to offload coal operations in Australia.
  • Sage Group Plc has cut about 30 senior executives since mid-April, when the U.K.’s largest software company warned sales failed to hit expectations. The company has also changed incentives for managing directors and rolled out a global marketing system for its sales team, it said in an earnings statement Wednesday. Sage surprised investors in April when it cut its 2018 guidance by a percentage-point, down to around 7 percent organic revenue growth, causing shares to fall by 20 percent, the biggest drop since July 1993.
  • The prospect of a no-deal Brexit is real again. European Union chief negotiator Michel Barnier is ramping up his rhetoric and officials in private worry that the risk of a messy divorce, which had receded at the end of last year, is now back. At least twice in the last week Barnier has made public warnings that talks could still fail, including a speech to bankers and finance lobbyists in which he told them to prepare for the worst. “No one should underestimate the risk of disagreement,” he said.
  • Novo Nordisk A/S raised its full-year profit and revenue outlook as the Danish drugmaker looks to counter pricing pressure in the U.S. The world’s biggest maker of insulin is counting on diabetes drugs Victoza and Tresiba, along with the obesity medicine Saxenda, to help offset price erosion and mounting competition in the U.S. The shares rose as much as 5.3 percent as of 9:42 a.m. in Copenhagen, the most in nine months. Sales will increase 3 percent to 5 percent in local currencies, the company said Wednesday in a statement, lifting the lower end of the range by one percentage point. Profit will rise 2 percent to 5 percent, Novo said, also a one-percentage-point increase in the lower end.
  • HNA Group Co. plans to sell a real-estate unit for 2.9 billion yuan ($456 million), in the latest disposal for the embattled Chinese conglomerate as it unloads billions of dollars of assets to pare one of the highest debt loads in the country. HNA Investment Group Co. will sell a subsidiary that has the right to develop a project in Shanghai to a unit of real-estate developer Fusheng Group, according to a filing with the Shenzhen stock exchange on Wednesday. HNA expects to generate a 400 million yuan gain from the deal, which is subject to shareholders’ approval.

*All sources from Bloomberg unless otherwise specified