October 2nd, 2018

Daily Market Commentary

Canadian Headlines

  • Royal Dutch Shell Plc and its partners announced an agreement to invest in a multibillion-dollar liquefied natural gas project in western Canada — the largest of its kind in years that will carve out the fastest route to Asia for North American gas. LNG Canada — comprised of Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. — confirmed the expected final investment decision in the C$40 billion ($31 billion) project, according to a statement from Shell on Tuesday. Bloomberg News reported Sunday that the group had approved the investment and an announcement was imminent.
  • A Quebec nationalist party seeking curbs on immigration won power in Canada’s second-largest province, the latest in a string of defeats for regional Liberal governments nationwide. Coalition Avenir Quebec, founded in 2011 by millionaire businessman Francois Legault, won the vote in the French-speaking province with a clear majority, defeating the incumbent Liberal Party, which had been in power almost uninterrupted for 15 years. The Parti Quebecois, the political force behind two referendums on separating from Canada, was dealt the worst result in its history.
  • Corporate bond issuance in Canada is on track to hit a fresh record this year after the country’s negotiators managed to sign a new free trade agreement with its biggest business partner. Bond issuance in North America’s third largest economy this year is at C$86.7 billion ($67.7 billion). Issuers would need to price at least another C$23.1 billion of securities to match record levels seen last year. Such a mark is easier to hit after a deal was reached Sunday on the North America Free Trade Agreement, to be known as U.S.-Mexico-Canada Agreement, or USMCA.



World Headlines

  • European equities retreated at the open, led by the region’s biggest lenders, amid concerns about the Italian government’s clash with the European Union over the budget proposal. The Stoxx Europe 600 Index fell 0.5 percent, while the Stoxx 600 Banks Index was down 1.2 percent. HSBC Holdings Plc dropped 0.9 percent, Banco Santander SA declined 1.8 percent and Intesa Sanpaolo lost 2.8 percent. Siemens dropped 2.5 percent after being cut to hold at HSBC.
  • While a deal between the U.S. and Canada to revamp the Nafta trade deal with Mexico gave global risk appetite a boost at the start of the week, investor sentiment remains fragile amid a laundry list of threats to markets. Beyond Italy, Sino-American tensions are back in focus after the Chinese navy dispelled a U.S. missile destroyer from waters near South China Sea islands, in Beijing’s account of the incident. Meanwhile, political drama in Washington still swirls around President Donald Trump’s Supreme Court nominee, which may feed through to November congressional elections and affect the outlook for the administration’s agenda.
  • Asian stocks fell as Hong Kong stocks dragged the regional benchmark index lower. The MSCI Asia Pacific Index declined 0.8 percent to 163.72 as of 4:35 p.m. in Hong Kong. The Hang Seng Index fell 2.4 percent on its first trading day of the fourth quarter. Some blamed China’s weak manufacturing data over the weekend for the losses, as well as reports of a U.S. warship sailing close to islands claimed by China. Mainland markets and exchange links with Hong Kong are shut throughout the week.
  • Oil traded near the highest level in almost four years as investors grapple with doubts over OPEC’s ability to replace falling exports from Iran. Futures were little changed in New York after closing Monday at the highest since November 2014. Iranian crude and condensate exports declined to their lowest in 2 1/2 years before the impending return of U.S. sanctions. Meanwhile, the new U.S.-Mexico-Canada Agreement, which superseded the 24-year-old North American Free Trade Agreement, eased some concerns about global commerce.
  • Gold rises as investors weigh the Trump administration’s trade deals, which may set the scene for a protracted economic conflict with China, and oil’s rally to the highest level in almost four years.
  • Coal hit $100 a ton in Europe for the first time in more than five years, driving up the cost of electricity across the continent and breathing life into a polluting industry that policy makers are working to shrink. Demand for the power generation fuel in China and India is drawing in cargoes of both coal and liquefied natural gas that otherwise would land at plants from Britain to Germany. The strength of those two commodities has been all the more surprising as the bulk of the gains came before the winter heating season, when energy needs and prices usually increase in the northern hemisphere.
  • Irish discount giant Ryanair Holdings Plc posted another month of slower traffic growth after strikes forced it to scrap 400 flights. The 6 percent year-on-year increase in core passenger numbers was the slowest gain for September since 2014 as the Dublin-based carrier witnessed two days of walkouts by its European crews. The carrier has been offering discounts to help offset the negative publicity around the labor dispute, including at its new Austrian unit, Laudamotion.
  • The death toll from the Sulawesi earthquake and tsunami topped 1,200 as authorities scrambled to bring food and medicines to thousands displaced by Indonesia’s deadliest such disaster in more than a decade. Thousands of military and police personnel joined relief and rescue workers in the worst affected areas of Sulawesi island, now in its fourth day since the 7.4 magnitude earthquake and subsequent tsunami unleashed a trail of devastation. President Joko Widodo ordered officials to intensify relief and rescue operations and boost the supply of essential items as reports of looting of food and other goods emerged.
  • OPEC’s Persian Gulf countries are struggling to boost oil supplies enough to fill the gap left by Iran’s export collapse ahead of renewed U.S. sanctions that are due to take effect Nov. 4. The six OPEC nations that surround the Gulf sent less crude and condensate, a light form of oil extracted from gas fields, to overseas markets in September than in any other month this year. Their combined flows slipped by around 200,000 barrels a day from the August level.
  • Amazon.com Inc. raised its minimum wage for all employees in the U.S. and U.K. amid increasing scrutiny of working conditions and compensation at the Internet retail giant. Effective Nov. 1, the U.S. wage increase to $15 an hour applies to more than 250,000 current employees along with 100,000 more seasonal workers who will be hired during the holidays, Amazon said Tuesday in a statement. The hourly minimum wage in the London area will rise to 10.50 pounds ($13.60), and 9.50 pounds in the rest of the U.K., affecting some 37,000 current and seasonal employees, according to a separate statement.
  • JHL Biotech Inc., a Taiwan-based developer of cheaper alternative cancer drugs, has raised a new round of financing at a valuation of about $750 million, a person with knowledge of the matter said. Most of the funding came from existing investors including French pharmaceutical giant Sanofi, the person said. Proceeds will go toward ongoing development of JHL Biotech’s pipeline of drug candidates that are in phase III clinical trials, according to the person, who asked not to be identified because the information is private.
  • The U.K. needs a hugely ambitious trade policy — equivalent to deals with seven Americas — to fully compensate for a no-deal Brexit, according to Bloomberg Economics. A free trade agreement with the U.S. would offset just a fraction of the cost of leaving the European Union without any deal, while even an arrangement with the EU would cover only half the cost.
  • After months of negative news, American farmers rejoiced as the U.S. finally secured a trade deal with both Canada and Mexico. The pact comes just as U.S. growers are harvesting mammoth corn and soybean crops and domestic meat production balloons. The outlook for big supplies combined with trade tensions, especially with China, had sparked a prolonged rout for agriculture markets. Having all three North American countries agree on a deal has given traders and farmers reassurance that some flows of agricultural goods won’t be disrupted, particularly to Mexico, a major buyer of U.S. corn, soybeans, pork and cheese.
  • Oxford Properties Group is spending about $2 billion to transform an old freight terminal on Manhattan’s West Side into a 12-story office building, according to a person with knowledge of the plans. Oxford, the real estate unit of Canadian pension fund OMERS, and Canada Pension Plan Investment Board bought the property from Westbrook Partners LLC and Atlas Capital Group LLC in January for $700 million, Dean Shapiro, the Toronto builder’s head of U.S. development, said in an interview. That sum is part of the total investment, said the person, who asked not to be identified because the matter is private.
  • Kuwait has all but stopped shipping crude to the U.S. for the first time since the aftermath of Saddam Hussein’s invasion in 1990, eroding an economic link between Washington and the Arab petro-monarchy. The halt is the latest sign that booming demand for oil in Asia, particularly as the U.S. re-imposes sanctions on Iran, and rising supplies from America on the back of the shale revolution are re-drawing petroleum trade routes.
  • The auto industry — a slice of it at least — converges in France this week for the biennial Paris Motor Show, where executives are showing off electric cars for the masses, robo-cars for the future and the self-proclaimed quickest car in the world. The Paris event is Europe’s largest this year. But it’s lost some luster as manufacturers opt for techy settings to unveil their Tesla killers. Volkswagen AG, Fiat Chrysler Automobiles NV and Nissan Motor Co. are skipping this year, along with Ford Motor Co. There’s still plenty to watch for, as automakers fight through a range of headwinds, from trade wars to Brexit to emissions regulation to a slowing Chinese market for cars — not to mention the staggering challenges of electrification, automation and mobility services like car sharing.
  • EasyJet Plc has partnered with Virgin Atlantic Airways Ltd. for connections at its London Gatwick base, giving passengers on mainland Europe easy access to routes across the Atlantic. Connecting with Virgin flights will open up destinations including Las Vegas, Orlando, Antigua and St. Lucia, the carriers said in a joint statement on Tuesday. Similar agreements are already in place with the likes of Norwegian Air Shuttle ASA, Canada’s WestJet and Singapore Airlines Ltd.
  • Aston Martin said investors in its initial public offering should be prepared to pay 19 pounds ($24.64) per share or risk losing out when the company lists on the London Stock Exchange this week, according to terms obtained by Bloomberg. The figure is toward the lower end of an updated range of 18.50 to 20 pounds given out on Monday, but well below the top end of 22.50 pounds that the company had been targeting in the run-up to the deal.
  • European Union finance minsters agree on the need to build up the bloc’s defenses against money laundering in the wake of scandals in Denmark and the Netherlands, but they still don’t see eye to eye on what to do or who should do it. The high-profile cases at Danske Bank A/S and ING Groep NV, and a reprimand issued to Deutsche Bank AG, have led to calls for an EU money-laundering cop. Some ministers backed this idea; others opposed even a modest proposal for the European Banking Authority to coordinate the efforts of national agencies charged with tracking illicit money moves.
  • Akzo Nobel NV plans to distribute another 5.5 billion euros ($6.4 billion) to shareholders from the sale of its specialty-chemicals business, rewarding investors for a plan that the paint company used to fend off an unwanted takeover approach. The proceeds will be distributed using a capital repayment and share consolidation of 2 billion euros, a cash dividend of 1 billion euros and a 2.5 billion-euro stock buyback, the Amsterdam-based company said in a statement Tuesday. The paint-and-coatings maker already paid a 1-billion-euro special dividend in December in anticipation of the sale of the chemicals business, which Carlyle Group LP agreed to buy in March.


*All sources from Bloomberg unless otherwise specified