May 6th, 2019
Daily Market Commentary
- Canadian Headlines
- Five months from an election, Canadian voters remain undecided on who they think would best grow the economy — the latest signal of a wide-open race. Prime Minister Justin Trudeau and Conservative Leader Andrew Scheer are neck-and-neck as the top choices to best manage the country’s growth. But fully half the country favors neither of them, Nanos Research found in a poll commissioned by Bloomberg. Asked which leader they trusted to support economic growth, 26 percent of respondents picked Scheer and 25 percent chose Trudeau, a statistical tie. Another 20 percent of respondents said they don’t trust any. Four leaders of smaller parties received single-digit support. Another 14 percent of respondents said they didn’t know.
- Toronto’s housing market entered the busy spring property season with a bang, as sales surged 17 percent in April compared with a year earlier and prices also pushed higher. The number of transactions totaled 9,042 units last month, compared with 7,744 units in April 2018, the Toronto Real Estate Board said Monday. On a seasonally adjusted basis, sales were up 11 percent in April compared with March. The average selling price of a home climbed 1.9 percent from a year ago, to C$820,148 ($544,344).
- World Headlines
- European equities slid and the benchmark index in Shanghai tumbled 5.6 percent, even after Chinese state-backed funds were said to have been active in an effort to limit the sell-off.
- Equities slumped globally and Treasury futures climbed with other haven assets after President Donald Trump’s threat to increase tariffs on Chinese imports called into question the chances of a resolution to the trade war. The yen rose while crude oil slid. Futures on the S&P 500 index sank as much as 2.2 percent, signaling a punishing start to the week on Wall Street after Trump tweeted a plan to hike tariffs this coming Friday.
- With cash markets for Treasuries closed due to holidays in Tokyo and London, futures on the world’s benchmark bonds jumped the most in more than one month. European government debt was steady as economic activity in the euro area showed signs of stabilization. Seeking to ramp up pressure on China for more concessions, Trump threatened in two tweets to more than double tariffs on $200 billion of Chinese goods and impose a fresh round of duties on top of that. Talks to resolve the year-long trade standoff appeared to be on life-support Monday, with Beijing struggling to fully respond.
- Oil tumbled toward $60 a barrel as President Donald Trump threw trade talks between the world’s two largest economies into disarray with a threat to raise tariffs on Chinese imports, roiling global markets. U.S. crude pared losses after plunging as much as 3.1 percent in New York to the lowest level in five weeks. China was said to be considering delaying a trip by its top trade negotiators to Washington this week after Trump threatened on Sunday to raise tariffs on $200 billion of Chinese imports to 25 percent from 10 percent. Saudi Arabia also cut June pricing for all crude grades to the U.S. in a step that appeared to be aimed at easing concern over supplies.
- Gold nudged higher as uncertainty over the future of trade talks between the U.S. and China increased demand for haven assets after President Donald Trump threatened steeper tariffs. China’s foreign ministry said that officials were still planning to travel to the U.S. for the next round of talks — but was unable to confirm when amid signs that a delay is now being considered. On Sunday, Trump raised pressure on China to make concessions by threatening to more than double tariffs on $200 billion of Chinese goods and raised the possibility of extending a new 25 percent duty on another $325 billion in imports that aren’t currently covered.
- Kraft Heinz Co., the packaged food giant, said it plans to restate earnings for 2016, 2017 and part of 2018, and that it found evidence of employee misconduct in procurement that increased the cost of products sold. The effect of the restatements for supplier rebates and other misstatements are expected to be less than 2 percent in each year on adjusted earnings per share, the company said in a regulatory filingMonday. Kraft Heinz shares fell 2.6 percent in premarket trading.
- Theresa May’s officials are drafting a new law in preparation for a Brexit deal between the government and the opposition Labour party that would break the deadlock that’s paralyzed the U.K.’s divorce from the European Union. According to people familiar with the matter, new clauses are being written into the Withdrawal Agreement Bill that would provide for a customs union-style arrangement guaranteeing there are no checks on goods crossing the U.K.-EU border.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $12.3 million in the week ended May 3, compared with gains of $57.6 million in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $19 billion.
- Economic activity in the euro area showed signs of stabilization in April, with nascent signs that the bloc’s slowdown may be gradually bottoming out. A composite Purchasing Managers’ Index came in at 51.5 in April, little changed from March’s 51.6, and a gauge for the service sector declined. Both readings were slightly higher than initial estimates, and order growth improved at the best rate since November. A separate report showed investor confidence in the euro economy rose this month to its highest since November.
- Talks between the U.S. and China to resolve their year-long trade standoff appeared to be on life-support Monday, with Beijing struggling to respond to a pair of tweets by President Donald Trump that threaten an escalation of tariffs by the end of the week. China’s foreign ministry said that officials were still planning to travel to the U.S. for the next round of talks — but was unable to confirm when amid signs that a delay is now being considered. Meanwhile, a media blackout on Trump’s threat left investors baffled as stocks and the yuan tumbled on rumors that the trade war is now back on.
- The U.S. said it’s sending an aircraft carrier strike group and bomber force to the Middle East to send an “unmistakable message” to the Iranian regime, citing “a number of troubling and escalatory indications and warnings” it suggested were linked to Tehran. “The United States is not seeking war with the Iranian regime, but we are fully prepared to respond to any attack, whether by proxy, the Islamic Revolutionary Guard Corps, or regular Iranian forces,” National Security Advisor John Bolton said in a statement Sunday night.
- Norway’s Telenor ASA and Axiata Group Bhd., Malaysia’s biggest wireless carrier, are in talks to combine their Asian telecommunication operations in a “mega merger of equals” to create a company with 300 million customers in nine countries. The proposed transaction will form an entity with sales of about $13 billion and earnings of about $5.5 billion. Potential savings, or “synergies,” from the deal would amount to about $5 billion, according to Telenor. Telenor shares rose almost 5 percent in early trading in Oslo.
- Indonesia’s economic growth slowed in the first quarter amid a global slowdown that hurt the nation’s exports. Gross domestic product, the broadest measure of goods and services produced in the economy, rose 5.07 percent in the first quarter from a year ago, lower than the 5.2 percent median estimate in a Bloomberg survey of economists. Compared with the previous quarter, GDP fell 0.52 percent versus an estimated contraction of 0.42 percent.
- Chinese state-backed funds were active in selected stocks on Monday, people familiar with the matter said, seeking to cushion the blow from a sudden escalation in trade tensions with the U.S. Among the funds’ targets were two large oil companies, the people said, asking not to be named discussing private information. PetroChina Co., which fell as much as 3.5 percent in Shanghai, pared losses in afternoon trading to close with a 0.9 percent decline. China Petroleum & Chemical Corp. also spiked briefly, though it ended the day down 4.2 percent. Industrial and Commercial Bank of China Ltd., the country’s largest lender, displayed a similar pattern.
- Park Hotels & Resorts Inc agreed to acquire Chesapeake Lodging Trust in cash and stock deal valued at $2.7 billion, helping Park to secure position as the second largest lodging REIT. Chesapeake shareholders will get $11 in cash and 0.628 of a share of Park common stock, for a price of $31 per share, according to a statement. The price represents 8 percent premium to Chesapeake’s May 3 closing price.
- Sun Pharmaceutical Industries Ltd. is scouting for a partner in China to help it win a larger piece of the world’s second-largest drug market, where the government is on a mission to drive down the cost of healthcare. With a recovery underway in its U.S. business, Sun Pharma’s billionaire founder Dilip Shanghvi is homing in on China and believes market watchers are underestimating the potential there for India’s largest drugmaker.
- China’s banking regulator has told the nation’s major lenders to accelerate recognition of nonperforming loans, as officials seek to bolster the quality of lending, according to people familiar with the matter. The China Banking and Insurance Regulatory Commission in recent weeks used so-called window guidance to inform banks with nationwide operations that they must classify corporate loans overdue for more than 60 days as nonperforming, down from 90 days previously, said the people, who asked not to be identified discussing private information.
- Occidental Petroleum Corp. moved a step closer to sealing its proposed $38 billion acquisition of Anadarko Petroleum Corp. after it sweetened its offer and agreed to sell assets owned by the target company. Occidental increased the cash portion of its bid to 78 percent from 50 percent on Sunday and pledged to cover the $1 billion breakup fee Anadarko would have to pay for abandoning an already-agreed to deal with Chevron Corp. The heftier buyout proposal came just hours after French energy giant Total SA agreed to buy operations in four African nations for $8.8 billion, contingent upon Occidental completing a takeover of Texas-based Anadarko.
- Bharti Airtel Ltd., India’s second-biggest wireless carrier, is preparing to kick off the initial public offering of its Africa unit in a deal that could raise about $1 billion, people familiar with the matter said. Airtel Africa is planning to make a formal announcement about the London listing this month and aims to start trading in June, the people said, asking not to be identified because the matter is private. It’s considering seeking an equity valuation of about $5 billion, they said.
- Fidelity Investments, which began a custody service to store Bitcoin earlier this year, will buy and sell the world’s most popular digital asset for institutional customers within a few weeks, according to a person familiar with the matter. The Boston-based firm, one of the largest asset managers in the world, created Fidelity Digital Assets in October in a bet that Wall Street’s nascent appetite for trading and safeguarding digital currencies will grow. It also puts Fidelity a step ahead of its top competitors that have mostly stayed on the sidelines so far. The firm said in October that it would offer over-the-counter trade execution and order routing for Bitcoin early this year.
- Boeing Co. knew months before a deadly 737 Max crash that a cockpit alert wasn’t working the way the company had told buyers of the single-aisle jetliner. But the planemaker didn’t share its findings with airlines or the Federal Aviation Administration until after a Lion Air plane went down off the coast of Indonesia in October, according to a Boeing statement Sunday as it provided additional details of an issue that first came to light last week. The accident occurred after erroneous readings by a single angle-of-attack sensor triggered software that pushed the jet’s nose down until pilots lost control.
*All sources from Bloomberg unless otherwise specified