November 20th, 2018
Daily Market Commentary
- Amid the worst crude-price environment in its history, the Canadian oil industry is being hamstrung by internal divisions that are making it harder to rally around potential solutions. That draws a stark contrast to the U.S., where a less divided industry wields more clout. Most notable is the split between Canada’s pure producers, who are being devastated by plummeting local prices, and the large, integrated energy companies that have been mostly unscathed. There’s also a rift between oil-sands producers — a target of climate-change activists around the world — and the frackers and conventional drillers that have been suffering from the pipeline bottlenecks brought on by those environmental opponents.
- Forget Vancouver. British Columbia’s housing boom is set to shift to the province’s rugged north as Royal Dutch Shell Plc’s $31 billion liquefied natural gas project sparks an economic boom in the remote region. British Columbia’s North Coast — a sparsely populated region usually synonymous with untamed wilderness, black bears and glacial fjords– is set for a turnaround as Shell and its four partners ramp up activity on Canada’s largest infrastructure project ever, according to Bryan Yu, deputy chief economist at Central 1 Credit Union.
- European shares fell at the open, extending Monday’s drop and tracking losses in U.S. and Asia markets on renewed jitters over the tech sector and as investors await a new round of Italy’s budget saga. The Stoxx 600 Europe Index dropped 0.6 percent, lead lower by tech shares. EasyJet Plc rose as much as 2 percent after the carrier reported headline profit that beat analyst estimates, while Julius Baer Group Ltd. dropped 5 percent after the Swiss manager said its assets keep shrinking.
- Contracts on the tech-heavy Nasdaq, S&P 500 and Dow pointed to declines at the open, while the Stoxx Europe 600 Index dropped a fifth day as its technology sector headed toward a bear market. Equities fell across Asia after U.S. software developers and chip makers dragged the S&P down Monday. Treasuries rose, driving the 10-year yield down to its lowest level since late September, ahead of the U.S. Thanksgiving holiday Thursday. A credit-default swap index of mostly high-yield issuers in Europe reached the highest in almost two years, signaling renewed nerves about the asset class.
- Japanese stocks fell as a selloff in U.S. technology companies and the arrest of Nissan Motor Co. Chairman Carlos Ghosn hurt market sentiment. Nissan and its alliance partner Mitsubishi Motors Corp. dropped following the arrest of Ghosn on suspected violations of financial laws, while Toyota Motor Corp. gained. Tech blue chips including SoftBank Group Corp., Sony Corp. and Nintendo Co. were among the biggest contributors to the Topix index’s decline. Technology names led U.S. stocks lower Monday amid reports of Apple Inc. cutting production orders for three iPhone models.
- Oil slipped again on persistent fears that a surplus will re-emerge next year despite OPEC’s plans to cut production. Futures for January delivery declined 0.8 percent in New York. The Organization of Petroluem Exporting Countries and its partners need to watch the market in the coming weeks before making any decisions to trim output, Russian Energy Minister Alexander Novak said on Monday. The producer group will meet in Vienna in early December to discuss supply curbs and International Energy Agency Executive Director Fatih Birol warned that any reduction could have negative implications.
- Gold lacked direction, flipping between small gains and losses to trade little changed as the dollar edged higher. The London Bullion Market Association revealed long-awaited data on the size of the U.K. capital city’s gold market, showing that London lags behind New York, while holdings in gold-backed exchange-traded funds rose to a fresh 14-week high. In other precious metals, palladium’s rally has lifted prices to within a whisker of parity to gold for the first time since 2002.
- The Bank of England will give U.K. lawmakers its assessment of what Brexit could do to the financial system and broader economy at the end of November. The report to the Treasury Committee on Nov. 29 will offer what’s intended to be an independent assessment of Prime Minister Theresa May’s proposed European Union Withdrawal Agreement. It could prove contentious, given the view among some pro-Brexit lawmakers that the BOE, and Governor Mark Carney, are biased in favor of EU membership.
- London’s stock of completed but unsold homes has surged by almost half this year as Brexit uncertainty and affordability issues dog the housing market. The number in the capital jumped to 2,374 units as of Sept. 30, the most on record and up from 1,595 at the end of 2017, according to data compiled by Molior London. The borough with the biggest stockpile is Wandsworth, an area that borders the River Thames, followed by Croydon, an outer borough in the south of the city.
- Boston Scientific Corp. agreed to buy rival BTG Corp. for 3.3 billion pounds ($4.2 billion) to expand its offering of medical devices to treat cancer and other disorders. Boston Scientific, a maker of stents that hold open damaged blood vessels, will pay 840 pence in cash per share, a 37 percent premium over BTG’s Monday closing price, according to a statement. BTG surged as much as 35 percent, a record gain, reaching their highest level in almost four years in London trading.
- As Bitcoin plunges, the U.S. Justice Department is investigating whether last year’s epic rally was fueled in part by manipulation, with traders driving it up with Tether — a popular but controversial digital token. While federal prosecutors opened a broad criminal probe into cryptocurrencies months ago, they’ve recently homed in on suspicions that a tangled web involving Bitcoin, Tether and crypto exchange Bitfinex might have been used to illegally move prices, said three people familiar with the matter.
- Mondelez International Inc. is working with Morgan Stanley as it studies a bid for Arnott’s Biscuits, the Australian maker of Tim Tams, and Danish butter-cookie producer Kelsen Group, people familiar with the matter said. Australian buyout firm Pacific Equity Partners is also considering an offer for the Campbell Soup Co. brands, which may fetch as much as $3 billion, according to the people. The assets have separately drawn interest from other potential bidders including Kraft Heinz Co., the people said, asking not to be identified because the information is private.
- Pakistan said bailout negotiations with the International Monetary Fund will be extended until the lender’s board meeting in January as talks this month in Islamabad hit an impasse over the fund’s proposed changes to currency and tax policy. “The major deadlock was on the exchange rate and raising general sales tax” both of which are likely to be politically unpopular, Abid Qaiyum Suleri, an economic adviser to the government, told Bloomberg. Noor Ahmed, the secretary at the Finance Ministry’s economic affairs division, confirmed there are “outstanding issues.”
- Xi Jinping is expected to seal billions of dollars worth of deals during a trip to Manila that started Tuesday as Philippine President Rodrigo Duterte’s administration shrugs off U.S. warnings about accepting Chinese cash. Xi’s two-day trip marks the first state visit to the Philippines by a Chinese president in 13 years. Philippine officials say dozens of agreements will be signed on everything from infrastructure to trade to security, building on $24 billion in investment pledges made two years ago when Duterte visited Beijing.
- Takeda Pharmaceutical Co. sold $5.5 billion of dollar bonds on Monday after pricing euro-denominated notes last week, completing the biggest debt fundraising by an Asian company this year to help pay for its $62 billion purchase of U.K.-listed Shire Plc. The Japanese drugmaker moved quickly, overcoming difficult market conditions, to meet its stated goal of raising about $14 billion dollars across euro and U.S. currency issuance. The Shire deal is expected to be approved by Europe on Tuesday in its final major regulatory hurdle.
- Turmoil engulfed cryptocurrency markets again on Tuesday, with every major coin extending a rout that’s rocked confidence in the nascent asset class just as U.S. regulators try to close in on alleged fraud. Bitcoin tumbled below $4,225 to a 13-month low, before regaining some ground. The slide helped fuel a sell-off among rival tokens Ether, Litecoin and XRP, which pared an earlier loss that reached 17 percent.
- There are two companies in the history of American business that have been worth a trillion dollars. First came Apple Inc., which crossed into thirteen-figure territory on Aug. 2. It stayed there for exactly three months, before closing the trading day on Nov. 2 valued at a paltry $986.6 billion. Next was Amazon.com Inc., which spent a portion of a single day in early September as a trillion-dollar concern. The milestone served as a reminder of how much the technology industry has come to dominate the economy — and capped a remarkable, decade-long run that ushered in sweeping changes in American business and society. But Silicon Valley’s recent downtick raises the possibility that the industry may have come over the summit. Apple has lost about 20 percent of its market value since its peak; Amazon is down 26 percent.
- Credit markets are set for the worst year since the global financial crisis as investors abandon hope of a late-2018 rally. High-yield and investment-grade notes are headed for losses in both euros and dollars, the first time all four asset classes have posted negative total returns since 2008, based on Bloomberg Barclays indexes. It’s been a exceptionally volatile month, with headlines on companies including CMC di Ravenna SC and Nyrstar NV triggering the biggest weekly jump in euro high-yield spreads in almost seven years, while dollar investment-grade spreads are at a two-year high amid a sell-off triggered by General Electric Co.’s woes.
- Target Corp. fell in early trading after posting quarterly sales and margins that disappointed Wall Street, adding pressure on the cheap-chic retailer as it heads into the critical holiday season. Comparable sales, the most-watched barometer of a retailer’s performance, rose 5.1 percent in the third quarter, just shy of analysts’ 5.2 percent estimate. The company said it expects that measure to be about 5 percent in the final quarter, signaling another slight slowdown ahead.
- Australia has officially vetoed CK Group’s A$13 billion ($9.5 billion) bid for APA Group, saying concentrated foreign ownership of the country’s dominant natural gas pipeline operator isn’t in the national interest. “The consortium led by CK Asset Holdings Ltd. has been advised of my final decision that its current proposed acquisition of APA Group would be contrary to the national interest,” Treasurer Josh Frydenberg said in a statement Tuesday. “I have formed this view on the basis that it would result in a single foreign company group having sole ownership and control over Australia’s most significant gas transmission business.”
- Fuji Oil Holdings Inc. agreed to buy iconic Chicago-based company, Blommer Chocolate Co., in a $750 million bet on the U.S. market. The Japanese company plans to introduce its oil and fat technologies for value-added chocolate products and combine its raw-material procurement operations with Blommer’s. It will fund the deal with a mix of cash and debt. Fuji shares jumped as much as 7.1 percent on Tuesday in Tokyo.
- India’s central bank signaled a compromise with the government by agreeing to study a demand for sharing a part of its capital — an issue that had triggered a public spat between the monetary policy makers and their political bosses. The Reserve Bank of India will form a panel to consider the funds transfer to the government, the central bank said in a statement after Monday’s board meeting that lasted a little over nine hours. It, however, did not immediately yield to demands for easing lending norms for weak banks while retaining capital buffers for banks at 9 percent.
- Saudi Aramco said it may sell bonds to pay for a controlling stake in the country’s largest petrochemical maker, an acquisition likely to be the biggest ever in Saudi Arabia. The state oil giant known officially as Saudi Arabian Oil Co. said in a statement that it’s considering a range of options including a bond sale to finance the purchase of a majority stake in Saudi Basic Industries Corp. Aramco plans to buy a 70 percent share in Sabic from the Saudi Public Investment Fund. The deal is expected to cost between $70 billion and $80 billion, Crown Prince Mohammed Bin Salman told Bloomberg News in an interview last month.
- Lowe’s Cos. said it will exit its Mexico retail operations after the home-improvement chain reported sluggish same-store sales in the third quarter and cut its fiscal-year guidance again. Same-store sales rose 1.5 percent overall and 2 percent in the U.S., trailing analysts’ estimates. The company also said it will also divest Alacrity Renovation Services and Iris Smart Home.
*All sources from Bloomberg unless otherwise specified