November 19th, 2018
Daily Market Commentary
- Prime Minister Justin Trudeau gets one of his last chances this week to mend frosty ties with Canada’s business community as next year’s election nears. Trudeau’s finance chief, Bill Morneau, will unveil a fiscal update Wednesday in Ottawa that provides a shot at redemption after warnings about the country’s fading competitiveness. It will likely include incentives for capital investment but not an across-the-board reduction in corporate taxes. The government has frustrated some business leaders with an agenda heavily focused on social issues and riled economists by running unnecessary deficits. Morneau’s last federal budget — which punted infrastructure investments in favor of new program spending — landed in February without a mention of U.S. tax reform despite calls to keep pace.
- Canopy Growth Corp.’s venture capital arm is barred from investing in the U.S. pot market, but its founders are ready to take advantage of “the most compelling opportunity in the history of capitalism,” if federal laws change. Like many of its peers, Canopy Rivers Inc. has to steer clear of U.S. marijuana investments because its Canadian listing requires that issuers comply with federal laws in the jurisdictions where they operate. Although cannabis is legal in several states, it remains illegal at the federal level.
- European equities just can’t seem to catch a break as Renault SA’s plunge following misconduct allegations against its leader trimmed the stock market’s earlier gains. The Stoxx Europe 600 Index pared an initial 0.7 percent advance to 0.2 percent, after falling 2.2 percent last week. Renault slumped 13 percent as Nissan Motor Co. said it will seek the removal of Carlos Ghosn after uncovering “significant acts of misconduct” by the chairman. Novo Nordisk A/S was the biggest contributor to the index’s gain, rising 2.9 percent after being upgraded by JPMorgan Chase & Co.
- U.S. stock-index futures fell in Asian trading Monday after Vice President Mike Pence sharpened attacks on China during a week of summits that ended Sunday. December contracts on the S&P 500 Index declined as much as 0.5 percent as of 2:42 p.m. in Tokyo after the underlying gauge rose a second day on Friday. Futures contracts on the Nasdaq 100 and Dow Jones dropped as much as 0.6 percent and 0.4 percent respectively.
- Traders are brushing off Vice President Mike Pence’s sharpened attacks on China — at least for now. Asia’s benchmark gauge came out of its morning apathy to rise 0.4 percent by 5:15 p.m. in Singapore. Both the Shanghai Composite Index and Hong Kong’s Hang Seng Index climbed more than 0.7 percent and Japan’s Topix closed 0.5 percent higher, making up for a drop in Australian banks that helped drag down the nation’s gauge.
- Oil traded near $57 a barrel following six weeks of losses as Russia held off committing to further output curbs, opening up a gap with Saudi Arabia which has called for supply cuts. Futures in New York increased 0.3 percent, paring earlier gains of as much as 1.5 percent. Prices are recovering after concerns over global oversupply spurred OPEC and its allies to consider reducing output. Russia’s Energy Minister Alexander Novak said Monday producers need to “better understand both the current conditions and the winter outlook” before agreeing to a supply cut. The number of working oil rigs in the U.S. rose to the highest in more than three years last week, according to Baker Hughes data.
- Gold held onto its recent gains after rising last week by the most since late August. Palladium rose for a fifth straight day to yet another record. With the U.S. dollar little changed and stock markets mixed, gold is suffering from a lack of clear stimulus. By contrast, palladium continues to surge on expectation that Chinese demand for the metal used in pollution-control devices will exacerbate a supply deficit.
- WaterBridge Resources LLC, a U.S. pipeline company that handles wastewater from drilling oil and gas wells, is weighing an initial public offering in the first half of 2019 that could value the company at more than $1 billion, according to people familiar with the matter. The company, which is backed by private equity firm Five Point Energy, is working with advisers on the potential IPO, said the people, who asked to not be identified because the matter isn’t public. Its subsidiary, WaterBridge Partners LP, has confidentially filed for an IPO with the U.S. Securities Exchange Commission, according to a press release in June.
- Cimarex Energy Co. agreed to buy Resolute Energy Corp. for about $811 million, consolidating two oil producers in the Permian Basin of Texas and New Mexico. The cash-and-stock takeover will increase Cimarex’s net acreage in Reeves Country, Texas, by 34 percent and add to its per-share earnings next year, the companies said Monday in a statement.
- Japan’s monthly exports data showed a clean recovery from a string of natural disasters, even if the longer-term outlook remains clouded by trade-war risks and easing demand in China. The value of shipments abroad rose 8.2 percent in October from a year earlier, broadly in line with a forecast 8.9 percent gain, according to the Ministry of Finance. The figures released Monday revised the decline in September to a drop of 1.3 percent.
- Colfax Corp. agreed to buy DJO Global Inc. from private equity giant Blackstone Group LP for $3.15 billion in cash to gain a foothold in the lucrative market for orthopedics devices. The purchase will bring DJO’s leadership position in bracing and rehabilitation systems for patients with joint injuries, according to Annapolis Junction, Maryland-based Colfax. The transaction is expected to close in the first quarter of 2019, according to a statement Monday.
- MMC Norilsk Nickel PJSC, one of the top producers of nickel and palladium, plans to boost metals output in the coming years as it bets on demand from both electric and traditional vehicles. Nornickel wants to increase nickel and copper output by 15 percent in the next seven years, and raise platinum and palladium supply by 25 percent. While the Russian miner sees the battery revolution supporting materials like nickel, the car industry’s consumption of platinum-group metals — used in autocatalysts to curb emissions — should remain robust for a while yet.
- Telecom Italia SpA’s decision to name Luigi Gubitosi as its new chief executive officer marks another victory for Elliott Management Corp. in its push for a radical overhaul of the embattled phone company. The board, stacked with directors representing billionaire Paul Singer’s fund, chose the former Merrill Lynch banker at a meeting on Sunday. Gubitosi succeeds Amos Genish, who was ousted last week for resisting the activist’s call for a spinoff of the landline network. Bloomberg reported on Saturday that Gubitosi was set to become CEO.
- Thailand’s economy expanded far less than economists estimated last quarter, with growth easing to a two-year low as exports fell. Gross domestic product increased 3.3 percent in July through September from a year ago, the National Economic & Social Development Board said in Bangkok on Monday. That’s the slowest pace since 2016 and compared with the 4.2 percent median estimate in a Bloomberg survey of 21 economists.
- Hedge funds are betting OPEC will struggle to reverse oil’s precipitous plunge. Their combined wagers against West Texas Intermediate and Brent crude soared for a seventh straight week, the longest global short-selling streak in data going back to 2011. The bearish bets jumped 14 percent in the week ended Nov. 13 and have tripled since the end of September, according to data from the U.S. Commodity Futures Trade Commission and ICE Futures Europe on Friday.
- Deutsche Bank is being drawn deeper into the money-laundering scandal surrounding Danske Bank. Whistleblower Howard Wilkinson said that $150 billion of suspect funds went through the U.S. subsidiary of a large European lender that served as Danske’s main correspondent bank for dollar transactions and only ceased doing so in 2015. That’s a description that fits Deutsche Bank, though he stopped short of naming the lender in his testimony before Denmark’s Parliament on Monday.
- Cryptocurrencies resumed their slump on Monday, with Bitcoin falling within 5 percent of the $5,000 mark in the wake of a split of one of the largest major tokens. Bitcoin touched an October 2017 low and was trading at $5,235.17 at 6:44 a.m. in New York, according to consolidated Bloomberg pricing. Rival coins including Ether and Litecoin also retreated at least 9 percent. The wider Bloomberg Galaxy Crypto Index fell as much as 7.4 percent to a one year-low on a closing basis while XRP, the token associated with Ripple, was the lone gainer among major digital currencies.
- The arrest of Nissan Motor Co. Chairman Carlos Ghosn has thrown the auto industry’s largest global alliance into turmoil, with the Japanese carmaker saying it will seek to remove him. Ghosn, a towering figure in the industry who saved Nissan from collapse and brought it together with Renault SA and Mitsubishi Motors Corp., was detained Monday in Tokyo over a suspected breach of Japanese financial laws, according to NHK. He and Director Greg Kelly have been under investigation at Nissan for several months, and the company is seeking to oust them both, it said. Nissan is set to a hold a media conference in Tokyo this evening.
- Zayo Group Holdings Inc. has attracted takeover interest from a group of investors including funds managed by Blackstone Group LPand Stonepeak Partners LP, according to people with knowledge of the matter. Funds managed by KKR & Co., I Squared Capital, GTCR and Charlesbank Capital Partners are also part of the group that has expressed interest in a take-private deal for Zayo, which operates an almost 130,000-mile fiber network across North America and Europe, said the people, who asked not to be identified because the details aren’t public.
- Virgin Mobile Middle East & Africa is exploring options including selling all or part of itself, people with knowledge of the matter said. The closely held company is working with Evercore Inc. to assess options, which may include an initial public offering, said the people, who asked not to be identified because the deliberations are private. Discussions are at a preliminary stage and no final decisions have been made, meaning that the owners may opt to retain the business or spin it off, they said.
- Three years ago, Arlington, Virginia, was pitching itself as the next Silicon Valley. Victor Hoskins, the county’s director of economic development, tried to lure entrepreneurs with cash prizes, free housing, office space and other incentives. Few showed up. Last week, after a courtship lasting more than a year, Arlington landed the opposite of a startup: half of a second headquarters for Amazon.com Inc. Amazon’s arrival looks like a panacea for Arlington’s economy, which has been hurt by the flight of defense industry jobs. Amazon says it will hire more than 25,000 people and spend about $2.5 billion in the area. Hoskins also helped negotiate a bargain compared with Amazon’s other pick.
- The Thanksgiving turkey is browning, your guests are on route, and you suddenly realize you forgot whipped cream for the homemade pumpkin pie cooling by the window. Amazon stands ready to bail you out. The world’s biggest online retailer is offering quick grocery delivery from Whole Foods stores in Chicago and other cities until 2 p.m. on Thursday, an experiment in applying last-minute convenience to holiday meal prep that has already given it an edge with holiday gift shoppers. Amazon delivered its final Christmas order—which included a remote control toy car—at 11:58 p.m. on Dec. 24 last year.
- Jerry Jones has the Dallas Cowboys to thank for the bulk of his $6 billion fortune after buying the team in 1989 for a then-record $150 million. While it’s hard to say how much the National Football League franchise is worth today, Jones has made it clear no amount of money will persuade him to sell the team, which faces the Washington Redskins on Thanksgiving. Jones, 76, who derives some of his wealth from real estate and energy assets, recently acquired a controlling stake in Comstock Resources Inc., an oil-and-gas company that’s seeking to expand in the Haynesville Shale region. He spoke with Bloomberg this month about the Cowboys, art, and Texas oil and gas. The following comments have been edited and condensed.
- An unorthodox move by one of the world’s biggest cryptocurrency platforms to change the terms on $135 million of derivative contracts has infuriated some traders and saddled several with losses, underscoring the risks of using unregulated virtual currency exchanges. The episode at Hong Kong-based OKEx, which claims to handle more than $1 billion of crypto trades daily, involved futures on Bitcoin Cash, the virtual currency that split into two last week. In a decision that traders described as unusual if not unprecedented, OKEx forced the early settlement of its Bitcoin Cash contracts without warning on Nov. 14, just as prices were tumbling.
*All sources from Bloomberg unless otherwise specified