October 30th, 2018
Daily Market Commentary
- From declining resource stocks to the recent rout in cannabis shares, Canada’s venture exchange can’t seem to catch a break. Pot stocks accounted for more than a third the 11 percent decline in the S&P/TSX Venture Composite Index so far this quarter, with cannabis companies making up 10 of the 15 biggest contributors to the benchmark’s downside through Oct. 29. This has exacerbated a longer-term slump in the commodity-heavy small-cap index that has seen it lose about 80 percent from its 2007 high amid weakness in Canadian crude and metals prices.
- BP Plc ran its oil refineries at the hardest rate in 15 years during the third quarter, racing to profit from unusually cheap Canadian crude. The British oil major said its refining business — or downstream — delivered adjusted profit before interest and taxes of $2.11 billion in the third quarter, up from $1.46 billion during the second quarter. Much of the increase came from “higher North American heavy crude oil discounts,” BP said. The company said that its trading unit, one of the largest in the industry, also delivered better results than in the second quarter.
- Power Corp. of Canada is ready to pour fresh cash into fintech start-ups to stay close to an industry that could put its own financial services business model at risk. Power Corp’s in-house venture fund Portag3 has raised C$198 million ($150 million) in its second round of funding, with about half coming from units of the Montreal-based holding company and half from outside investors including National Bank of Canada and Intact Financial Corp. Power Corp. entities previously spent C$240 million on fintech companies.
- European stocks dropped and U.S. futures trimmed an earlier jump as traders turned their focus to a slew of company results and the next phase of a trade standoff between America and China. Treasuries fell and the dollar nudged higher. The Stoxx Europe 600 Index opened higher after better-than-expected results for major companies including BP Plc and Volkswagen AG, but earnings were mixed overall and the gauge went on to reverse.
- U.S. stocks are set to trim losses amid their worst month in almost a decade after President Donald Trump predicted a “great deal” with China on trade. December contracts on the S&P 500 Index rose 0.5 percent as of 7:09 am in London after the underlying gauge erased gains to close down 0.7 percent on Wall Street amid fresh trade tensions with Beijing. Contracts on the Dow Jones and Nasdaq 100 were up 0.4 percent and 0.6 percent, respectively.
- The MSCI Asia Pacific Index halted a five-day losing streak after President Donald Trump held out the possibility of a trade deal with China, even as his administration prepares for a possible expansion of tariffs. The yen slid and Aussie rose as Japanese and Australian shares rallied. China’s stocks climbed after authorities said they’d encourage long-term funds to invest.
- Oil slipped on concern that an escalating trade dispute between the U.S. and China will dampen global growth at a time when American crude inventories are growing. Futures slid 0.5 percent to trade below $67 a barrel in New York, after a decline of 0.8 percent on Monday. The U.S. is said to prepare another round of tariffs on all remaining Chinese imports if talks between the presidents of the two countries fail to ease trade friction. Meanwhile, American crude stockpiles are forecast to have risen for a sixth straight week.
- Gold dropped for a second day as Asian stocks turned higher after President Donald Trump spoke about a “great” deal with China on trade. Still, the precious metal remains higher in October and is poised to snap six straight months of losses. Trump’s comments in an interview with Fox News late Monday appeared to ease some concern following a Bloomberg report that said the U.S. is preparing to announce more tariffs on China if the countries’ presidents fail to make headway at a meeting scheduled for November in Buenos Aires.
- China’s yuan touched the weakest level since May 2008, as the central bank cut its daily fixing and on signs that a trade war with the U.S. may escalate. The currency declined as much as 0.15 percent to 6.9724 per dollar in Shanghai, within 0.5 percent of 7 — a level hasn’t been reached since the global financial crisis. That came after the People’s Bank of China weakened its daily reference rate, which restricts the onshore yuan’s moves by 2 percent on either side, to the lowest in more than a decade.
- The U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war, three people familiar with the matter said. An early-December announcement of a new product list would mean the effective date — after a 60-day public comment period — may coincide with China’s Lunar New Year holiday in early February. The list would apply to the imports from the Asian nation that aren’t already covered by previous rounds of tariffs — which may be $257 billion using last year’s import figures, according to two of the people.
- Chesapeake Energy will acquire WildHorse Resource Development, with operations in the Eagle Ford Shale and Austin Chalk formations, in a transaction valued at about $3.977 billion.
- General Electric Co. slashed its dividend to just a penny a share and said it plans to reorganize its ailing power division as new Chief Executive Officer Larry Culp took his first major steps to save the beleaguered manufacturer. GE cut its quarterly dividend from 12 cents a share — only the third reduction since the Great Depression — which will save GE about $3.9 billion a year.
- BP Plc is gearing up to leave European competitors in the dust, at least when it comes to spending the industry’s enormous cash pile. While Total SA and Equinor ASA both signaled last week they’re still keeping a tight rein on spending, BP showed Tuesday it’s prepared to take some risks. The U.K. oil major reversed a plan to issue new equity to fund a $10.5 billion acquisition, saying instead it will probably fund the whole thing with cash.
- The euro-area economy unexpectedly grew at its weakest in more than four years and a measure of confidence hinted at a more protracted slowdown. Gross domestic product increased 0.2 percent in the third quarter, half the pace of the previous three months and the rate that was forecast. Growth in two of the bloc’s four largest economies — Germany and Italy — ground to a halt, while sentiment among consumers and businesses in the region fell in October to the lowest in 17 months.
- The Trump administration has slapped restrictions on exports to a Chinese government-backed chipmaker it says threatens U.S. national security, adding pressure to an already fraught relationship between the world’s two largest economies. The Commerce Department said it’s blocking sales of American components to Fujian Jinhua Integrated Circuit Company Ltd., recalling a similar ban that brought telecoms gear giant ZTE Corp. to a virtual standstill. Jinhua “poses a significant risk of becoming involved in activities that are contrary to the national security interests of the United States,” the agency said.
- International Business Machines Corp. Chief Executive Officer Ginni Rometty has staked her legacy on a $33 billion acquisition designed to save the century-old company from irrelevancy in a business led by younger tech giants like Amazon.com Inc. In the second-largest deal in industry history, IBM is buying Red Hat Inc., a seller of software and services based on the open-source Linux operating system. The move is an admission that IBM’s current cloud strategy isn’t working — and some analysts doubt Red Hat is the solution.
- India is examining options including an outright sale of Infrastructure Leasing & Financial Services Ltd., a person with knowledge of the matter said, as the government tries to stem defaults at the lender with $12.6 billion of debt. A plan to be presented to a bankruptcy court Wednesday by the state-appointed board of the lender includes selling the entire stake to a financially strong investor and ensure business continuity, the person said, asking not to be identified as the matter is private. Other options include splitting businesses according to verticals and disposing them off to several buyers or injecting liquidity at group level to avoid an outright sale.
- UBS Chief Executive Officer Sergio Ermotti bought $13.1 million of shares in Switzerland’s largest bank shortly after its investor day last week, the largest management purchase in years, in a show of confidence to owners of the stock. A spokeswoman for UBS confirmed the purchase after Switzerland’s SIX Exchange reported Monday that an executive had bought 1 million shares on Oct. 26, the day after the event in London. It’s the first purchase of the stock by a senior executive since December 2016, according to data from the exchange.
- U.S. President Donald Trump said he plans to sign an executive order ending birthright citizenship for babies of non-immigrants and unauthorized immigrants born on U.S. soil, according to excerpts of an interview released Tuesday. “We’re the only country in the world where a person comes in and has a baby, and the baby is essentially a citizen of the United States,” Trump told “Axios on HBO” Monday. “It’s ridiculous. And it has to end.”
- Pfizer Inc. narrowed its full-year forecast despite beating third-quarter earnings estimates, after facing challenges at its unit that make older medicines and grappling with the fallout of a volatile currency market. Pfizer now predicts revenue for the year to be $53 billion to $53.7 billion, down from its July estimate of $53 billion to $55 billion.
- BNP Paribas SA joined Deutsche Bank AG in reporting steep third-quarter declines at its debt-trading business, complicating Chief Executive Officer Jean-Laurent Bonnafe’s plans to meet 2020 profit and growth targets. The French bank posted a sixth consecutive quarterly contraction in revenue from buying and selling bonds, currencies and commodities, while gains from equities trading were also lower than analysts had expected. The global markets business had its second-worst quarterly revenue since early 2016.
- Petroleo Brasileiro SA is close to announcing a sale of its stake in an African oil and gas exploration business to a group of investors led by Vitol Group, people familiar with the matter said. The state-run oil company’s partners in the African operations, Brazil’s Banco BTG Pactual and the U.K.’s Helios Investment Partners, have decided to keep their share of the business, the people said, asking not to be identified because the discussions are private. The deal will value Petrobras’s stake at about $1.5 billion and may be announced in the next month, they said.
- A consortium including Partners Group Holding AG is in talks to acquire a property complex in Beijing’s technology hub from Taiwanese developer Sino Horizon Holdings Ltd., people familiar with the matter said. The investor group is in negotiations about a purchase of the project that includes Dinghao market, one of the major electronics bazaars in northwestern Beijing, the people said. They have been discussing a price of about 5.7 billion yuan ($820 million), according to the people, who asked not to be identified as the information is private.
- With Democrats likely to take control of the U.S. House in midterm elections, analysts expect some near-term pressure on bank stocks but say it won’t be all bad news. Representative Maxine Waters (D-Calif.) at the helm of the Financial Services Committee might seek to return attention to Wells Fargo & Co.’s misdeeds. Some also expect fresh calls to break up the biggest banks. Even so, most market watchers anticipate President Donald Trump’s efforts to ease bank rules will continue, as his regulators are firmly in place.
- Carlyle Group LP joined an already-crowded field seeking to enable the next wave of U.S. oil exports. The private-equity firm announced plans Monday for a crude export terminal in Texas, the eighth project of its kind discussed in recent months with the potential to move millions of barrels more of U.S. oil into foreign markets. The new terminal, to be built with the Port of Corpus Christi, would have multiple operators and could be in service by late 2020.
*All sources from Bloomberg unless otherwise specified