November 25th, 2019

Daily Market Commentary

Canadian Headlines

  • Charles Schwab Corp. said it would acquire TD Ameritrade Holding Corp. in a multibillion-dollar deal that will reshape the retail brokerage business. Schwab agreed to acquire TD Ameritrade in an all-stock transaction the companies say is valued at $26 billion, or about $48.50 per share — a 19% premium based on Schwab’s share price as of close on Nov. 20. TD Ameritrade stockholders will receive 1.0837 Schwab shares for each TD Ameritrade share.
  • Canada’s Kirkland Lake Gold Ltd. agreed to buy Detour Gold Corp. for C$4.9 billion ($3.7 billion), furthering an M&A spree that’s swept the gold mining industry. With an all-share deal, Kirkland will take advantage of a record stock price to acquire the company, which operates the Detour Lake mine in northeastern Ontario. The agreement values Detour at C$27.50 a share, a 24% premium to the closing price on Friday. There’s been constant speculation about gold mining acquisitions after huge deals rocked the industry in the last year: Newmont Mining Corp.’s acquisition of Goldcorp Inc. and Barrick Gold Corp.’s takeover of Randgold Resources Ltd. The two combinations created companies that dwarf the rest of the industry and mean that smaller miners feel the need to consolidate if they’re going to stay relevant to shareholders.
  • Workers are receiving lay-off notices and chemical companies face shutdowns as the effects of Canada’s largest rail strike in a decade ripples through the economy. The strike by about 3,200 conductors and railyard operators at Canadian National Railway Co. is entering its seventh day on Monday, disrupting cargoes of everything from wheat to propane. In Halifax, on Canada’s east coast, the Unifor union said it received notice that 70 workers at a CN Rail autoport facility, which handles car distribution across North America, will be laid off as of Thursday due to the strike, while the chemical industry joined the oil sector in feeling the full brunt of the walkout.

World Headlines

  • European equities started the week on a positive note as China’s move to increase penalties on intellectual property violations fueled optimism about tariff negotiations with the U.S. and as LVMH surged after agreeing to buy Tiffany & Co. The Stoxx Europe 600 jumped 0.7%. LVMH added 2% after announcing it will buy Tiffany for more than $16 billion in the largest luxury-goods deal ever. Sectors that are sensitive to trade, such as miners and automakers, paced the advance. All subgroups opened in the green.
  • U.S. index futures advanced alongside European and Asian shares after China’s decision to tighten intellectual property rules boosted the chances of a trade deal between the world’s largest economies. Oil traded lower while the U.S. dollar was little changed. In the latest trade twist, China said over the weekend it will raise penalties on IP violations as it tries to smooth over one of the sticking points in talks with the U.S. government. The Asian country will also look into lowering the thresholds for criminal punishments for those who steal IP, according to guidelines issued by the government on Sunday.
  • Equities climbed across Asia, led by those in Hong Kong, where local elections brought a landslide victory to pro-democracy candidates. A gauge of the dollar was steady against its major peers, though the yen fell against the greenback and the pound gained. Elsewhere, China was planning a record sale of sovereign bonds in dollars, with a potential $6 billion offering, according to people familiar with the discussions. West Texas-grade oil futures drifted, after ending Friday barely changed on the week. Bitcoin fell as much as 11% and headed for its ninth weekday session of declines, the longest losing streak in a year.
  • Oil steadied near $58 a barrel as China made a concession that could help resolve trade tensions with the U.S. that have weighed on the global economy and fuel demand. Futures were little changed in New York, holding about $1 below the two-month intraday high reached on Friday. China said over the weekend it will raise penalties on violations of intellectual property rights in an attempt to address one of the key sticking points in talks with Washington. The ongoing impasse has eroded economic sentiment in the world’s two biggest oil users.
  • Gold was steady as investors weigh China’s plans to raise penalties on violations of intellectual property rights, a move that may address one of the sticking points in trade talks with the U.S. China will also look into lowering the thresholds for criminal punishments for those who steal IP, according to guidelines issued by the government on Sunday. It didn’t elaborate on what such moves might entail. The U.S. wants China to commit to cracking down on IP theft and stop forcing U.S. companies to hand over their commercial secrets as a condition of doing business there.
  • U.K. Prime Minister Boris Johnson is aiming to consolidate his lead in the polls in the final weeks of the general election campaign. On Sunday, he announced a safety-first policy package based on “sensible” promises, which included hiring 50,000 nurses for the country’s cherished National Health Service and cutting taxes for working people. Johnson carefully avoided the radical language and out-of-the-blue policy announcements that derailed his predecessor Theresa May’s campaign in 2017. There was one big condition Johnson said must be met first — to deliver Brexit and end years of deadlock and division over the U.K.’s divorce from the European Union. The only way of ending the trauma, Johnson claimed, was to pass his exit deal by electing a majority Conservative government on Dec. 12.
  • China is planning a record sale of sovereign bonds in dollars, with a potential $6 billion offering, according to people familiar with the discussions. The Ministry of Finance is considering tenors of three years, five years, 10 years and 20 years, according to the people, who asked not to be named as the talks aren’t public. The ministry didn’t immediately respond to a request for comment. This marks the third straight year for China to issue dollar debt, and underscores the nation’s continued interest in building out an offshore market where its companies and local authorities can tap funding. The 20-year note will fill a gap between 10-year and 30-year securities issued in 2018.
  • London’s transit authority refused to grant Uber Technologies Inc. a new license to operate in the capital, endangering the ride-hailing company’s future in the city. The stock dropped. Uber has 21 days to appeal and can continue to operate while a magistrates’ court considers the decision, a spokesman for Transport for London said. Uber had been operating on a two-month license that runs out on Monday, the latest extension while TfL reviewed changes the firm was making to the way it operates. The regulator’s refusal to sign off on Uber’s operations throws doubt over whether the company, which has 45,000 licensed London drivers, has any significant future in Britain.
  • Well into the second year of the trade war with the U.S., Chinais pressing ahead with its campaign to deepen an offshore bond market denominated in the currency of its top strategic competitor. For the third straight autumn, China is selling dollar bonds, with a potential $6 billion total offering of three-year, five-year, 10-year and 20-year securities, according to people familiar with the plans. The Ministry of Finance said in its 2017 resumption of dollar-debt sales it would help build a benchmark yield curve for Chinese issuers, which range from developers to local authorities.
  • General Electric Co. hired Carolina Dybeck Happe as its next chief financial officer, giving top boss Larry Culp a new partner to help tackle one of the trickiest turnaround efforts in corporate America. Dybeck Happe, who is resigning as finance chief at A.P. Moller-Maersk A/S, will replace Jamie Miller in early 2020, GE said in a statement Monday. The incoming executive will oversee GE’s global finance organization and activities including accounting, tax planning and internal auditing.
  • Turkey will test a component of its newly acquired Russian air defense system, a step that risks escalating a dispute with the U.S. and touching off possible sanctions. The lira reversed gains. Military aircraft will be used in the capital Ankara on Monday and Tuesday during the testing of the S-400 system’s radar-detection equipment, a Turkish defense official said, asking not to be identified in line with his department’s restrictions. The decision comes after President Recep Tayyip Erdogan said that he told President Donald Trump during a meeting this month that Turkey wouldn’t give up on deployment of the systems, risking penalties championed in Congress.
  • Royal Dutch Shell Plc needs to prove to investors it can generate big returns in its power business after it lost out in a bid to buy Dutch utility Eneco NV. Mitsubishi Corp. and Chubu Electric Power Co. will pay 4.1 billion euros($4.5 billion) for Eneco, the companies said in a statement on Monday. The Anglo-Dutch major didn’t disclose its bid, but the figure the Japanese companies have offered is about double the amount Shell plans to spend annually on clean energy.
  • Qatar, the world’s biggest supplier of liquefied natural gas, plans to boost output capacity by almost two thirds after it adds production facilities to exploit recently discovered reserves. The Persian Gulf state will expand its LNG capacity to 126 million tons a year by 2027, thanks to gas from a newly explored section of the planet’s largest field, Energy Minister Saad Sherida Al Kaabi said at a news briefing in Doha. Qatar can currently produce 77 million tons of LNG annually and expects to raise capacity to 110 million tons by 2024. Qatar’s massive North Field extends onshore into the area around the industrial city of Ras Laffan, Al Kaabi said on Monday. “Studies and well tests have also confirmed the ability to produce large quantities of gas from this new sector,” he said.
  • LVMH’s $16 billion purchase of U.S. jeweler Tiffany won the applause of analysts and investors, who said the deal allows the French conglomerate to bulk up in jewelry, threatening the dominance in the field of Cartier owner Richemont. “It’s a smart move” that will help LVMH “launch a more concerted attack on the Asian millennial market,” Flavio Cereda, analyst at Jefferies International Ltd., wrote in a note. The deal also will likely lead to renewed speculation about other potential tie-ups among luxury players, including Richemont, privately held Chanel and Gucci-owner Kering SA, Cereda wrote. LVMH shares, which jumped to a record earlier this month, advanced as much as 2% in Paris and were the No. 2 gainer on France’s CAC 40 Index. The troubled Italian shoemaker Tod’s SpA, often touted as a potential takeover target, climbed as much as 2% in Milan.
  • The International Monetary Fund called on Japan’s government and the Bank of Japan to cooperate more in support of the economy as it cut its 2019 growth forecast for the third time this year amid heightened global risks. Speaking at the conclusion of the fund’s annual mission to review Japan’s economy, IMF Managing Director Kristalina Georgieva essentially gave a green light for Prime Minister Shinzo Abe’s planned stimulus package as she called for continued spending to prop up growth and prices.
  • Investors added money to exchange-traded funds that buy emerging market stocks and bonds last week. This was the seventh straight week of inflows. Inflows to U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $1.58 billion in the week ended Nov. 22, compared with gains of $619.2 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly inflow since Feb. 8. So far this year, inflows have totalled $5.35 billion.
  • Novartis AG agreed to buy Medicines Co. for $9.7 billion, snapping up a promising cholesterol drug and adding to a string of recent acquisitions for Chief Executive Officer Vas Narasimhan. Medicines Co. shareholders will get $85 a share, Basel, Switzerland-based Novartis said in a statement on Sunday. That’s a 45% premium to the closing price on Nov. 18, before Bloomberg reported the two companies were in talks. Narasimhan has relied on acquisitions to sharpen the pharma giant’s focus on cutting-edge drugs for cancer, rare diseases and other illnesses. With the Medicines Co. deal, he’s paying a high price for essentially a single treatment, the experimental cholesterol drug inclisiran, analysts said. Novartis shares were little changed on Monday, trading at 90.22 Swiss francs in Zurich.
  • Asahi Kasei Corp. is buying Denmark’s Veloxis Pharmaceuticals A/S for 143.2 billion yen ($1.3 billion), the companies said, in the latest of a series of deals by Japanese drugmakers. Asahi Kasei is offering to buy the ordinary shares and warrants of Veloxis for 6 kroner per share in a tender starting next month, they said in a statementMonday. That’s a discount to the 6.6 kroner closing price on Friday, before the news was announced. In Monday’s early trading, the stock fell by about 9% to the offer price of 6 kroner.
  • Tesla Inc. Chief Executive Officer Elon Musk said orders for its Cybertruck have climbed to 200,000 even after two windows unexpectedly shattered in Thursday’s big reveal. The electric-car maker has a history of unveiling future products to throngs of excited customers, taking deposits, and then delivering years later. Two years ago, Tesla showed off a Semi truck and a next generation Roadster sports car, but neither vehicle is in production yet. This spring, Musk unveiled the Model Y crossover; that vehicle is slated to begin production next summer.
  • Bitcoin sank more than 10% to the lowest level in six months, extending last week’s slide past the weekend on concerns about a crackdown on cryptocurrency operations by China. The digital currency plunged as much as 11% from Friday’s close and was trading below $6,600 as of 1:50 p.m. in Hong Kong, according to Bloomberg composite pricing. It’s the first time since May that Bitcoin traded below the key $7,000 psychological level. The world’s largest cryptocurrency is also on track for eight straight days of declines, tying a record losing streak from 2014, according to Bitstamp pricing going back to August 2011 and including weekend trading.

*All sources from Bloomberg unless otherwise specified