October 18th, 2018
Daily Market Commentary
- MEG Energy Corp. said Wednesday it had rejected a C$3 billion ($2.3 billion) hostile takeover by Husky Energy Inc. and plans to launch a strategic review with an eye to finding another buyer. The Calgary-based oil and natural gas company said its board unanimously rejected the unsolicited bid Husky made last month, arguing it significantly undervalues the company and that it expected superior offers to emerge.
- Lumber’s sudden and sharp reversal, with prices plunging almost 50 percent from a record set just a few months ago, will probably force production cutbacks in Canada.
- Canadian stocks follow their U.S. peers lower even as Canada became the second nation in the world and first G7 nation to legalize pot. Cannabis shares opened lower, after about two months of solid gains as investors “sell the news” now that legalization went into effect.
- Canada manufacturing sales saw a smaller-than-expected monthly drop in August, data show. The loonie, however, is weaker against a strong U.S. dollar.
- European equities advanced amid a positive start to the region’s earnings season while Spanish banks dropped after the nation’s Supreme Court ruled they must pay mortgage-documentation taxes. The Stoxx Europe 600 Index rose as much as 0.6 percent, led by media stocks and drugmakers.
- Chinese shares extended the world’s deepest slump and the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market calm as risks mount for Asia’s largest economy. Fears of widespread margin calls fueled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose.
- U.S. stock futures fell in early European trading after a more hawkish tone from the Federal Reserve. Futures contracts on the S&P 500 index declined 0.4 percent as of 8:04 a.m. in London after the underlying gauge closed marginally lower on Wednesday. Contracts on the Dow Jones Industrial Average and Nasdaq were down 0.4 percent and 0.5 percent respectively.
- Oil traded near the lowest level in a month after a bigger-than-expected gain in American stockpiles overshadowed tensions between the U.S. and Saudi Arabia over a missing critic of the kingdom. Futures in New York fell 0.8 percent, after plunging 3 percent Wednesday. U.S. crude inventories rose 6.49 million barrels last week, the Energy Information Administration reported, more than twice the amount forecast in a Bloomberg survey.
- Spot bullion slips for a third day after the dollar gains and treasury yields climb back toward seven-year highs, as investors weigh the minutes of the latest Federal Reserve policy meeting. The metal’s drop is its longest losing streak since August, retreating from the July high set on Monday.
- Zinc halted two days of gains, with most metals lower in London as the dollar strengthened and investors weighed concerns about the outlook for Chinese growth and demand. Nickel traded at a one-month low as China boosted supplies of an alternative.
- With China’s economic expansion expected to slow as trade wars heat up, a closer look at the data may offer a better look at what’s really happening in the world’s second-largest economy. Gross domestic product probably expanded 6.6 percent from a year earlier in the third quarter, according to a Bloomberg survey of economists ahead of the report, due Friday morning in Beijing. Forecasters also expect data on retail sales and fixed-asset investment to show growth held steady in September, while growth of industrial production probably ticked a notch lower.
- U.K. retail sales fell more than economists forecast last month as food spending slumped the most in almost three years.
- The minutes of the September FOMC meeting further clarified why policy makers removed the descriptor “accommodative” from the official statement when characterizing the calibration of interest rates. This was not only designed to eliminate a potential point of conflict, it was also timed to make a statement on the imprecision of theoretical estimates of the optimal policy course.
- U.K. Prime Minister Theresa May said she is weighing a plan that would keep the U.K. bound to European rules for longer, in an attempt to break the deadlock in talks. May confirmed on Thursday that she was considering extending the 21-month transition — the grace period that’s due to kick in on Brexit day and maintain trading and market rules unchanged.
- The European Central Bank could start raising interest rates about a year from now if the euro-area economy develops as policy makers currently expect, Governing Council member Olli Rehn said on Thursday. Speaking a week before the next policy meeting, Rehn told a Finnish radio station that financial markets seem well-aligned with the central bank’s guidance, which foresees borrowing costs staying at record low levels through the summer of 2019.
- In the same week that Saudi Arabia made a veiled threat to use oil as a political weapon, the U.S. offered another reminder of its growing energy independence as government data showed shale oil production is forecast to reach a fresh record in November.
- Alcoa Corp. reported third-quarter earnings that were double estimates and announced its first share buyback in more than a decade in a sign that the top U.S. aluminum producer is weathering the trade war.
- Buyout firm Warburg Pincus is considering a $3 billion sale of natural gas producer Navitas Midstream Partners LLC, people with knowledge of the matter said. Navitas has hired investment bank Jefferies Financial Group Inc. to run an auction process, said the people, who asked not to be identified because they weren’t authorized to speak publicly.
- Closely held JupiterMLP LLC is about to plow at least $1 billion into a massive oil pipeline out of the nation’s hottest shale play. A majority of the project’s capacity to haul crude out of the Permian Basin has already been claimed by undisclosed companies, JupiterMLP Chief Executive Officer Tom Ramsey said in an interview on Wednesday. The company has also secured financial backing from Charon System Advisors — bringing the project’s total investment into the “ten-figure” range, he said.
- Mad cow, also known bovine spongiform encephalopathy disease, was found on a Scottish farm. The disease was confirmed on a farm in Aberdeenshire in eastern Scotland, according to a government statement. The case did not enter the food chain and there’s no risk to human health. Precautionary movement restrictions have been put in place at the farm and further steps are being taken to identify the origin of the disease.
- The Trump administration intervened to quash a $15 billion deal for Siemens Corp. to develop power stations in Iraq, instead persuading Baghdad to sign an agreement with General Electric Co., two administration officials said. Iraq signed a memorandum of understanding with GE on Monday, after senior U.S. officials warned Iraqi Prime Minister Haider al-Abadi that the future of the U.S.-Iraq relationship would be at risk if his government accepted the deal with Siemens, according to the officials, who asked not to be identified discussing private deliberations. The Financial Times reported the U.S. move earlier Thursday.
- Invesco Ltd. agreed to buy OppenheimerFunds, the more than $246 billion asset manager, from Massachusetts Mutual Life Insurance Co., adding more actively managed products to the lineup at one of the largest managers of exchange-traded funds. The deal with involve Invesco paying 81.9 million shares of its common equity and $4 billion in perpetual, non-cumulative preferred shares, according to a statement Thursday. The transaction is expected to close in the second quarter of 2019.
*All sources from Bloomberg unless otherwise specified