October 3rd, 2018

Daily Market Commentary

Canadian Headlines

• The threats were growing graver and the prospects for a new Nafta deal looked dark. But then each side blinked. The trade accord between the U.S. and Canada that came together Sunday night emerged from a frenzied, 72-hour push that capped 13 months of glacial negotiations, according to U.S. and Canadian officials and other people familiar with the talks. And it happened as President Donald Trump weighed new tariffs after snubbing Canadian Prime Minister Justin Trudeau at the United Nations. The chill between the two leaders at the UN General Assembly left talks stalled, just days before a key deadline. Then, for the first time in a year, each side made a major concession: The Canadians committed to reducing dairy tariffs, and the U.S. gave in on protections for Canadian broadcasters and other red lines Trudeau had drawn, the people said.
• Toronto’s housing market continues to settle into a new normal as sales and prices changed little in September. Home sales climbed a seasonally adjusted 0.2 percent from August to 6,455, 1.9 percent more than a year ago, the Toronto Real Estate Board said Wednesday. The average home price fell 0.5 percent from August to C$796,786 ($621,421), 2.9 percent higher that a year earlier. The benchmark price, which measures the value of a typical home, was up just 0.1 percent on the month to C$765,400.
• Canadian heavy crude’s discount to West Texas Intermediate futures increased to the widest in almost five years, raising the specter of local oil producers curtailing operations. Western Canadian Select’s discount for November fell $1.25 to $40.75 a barrel Tuesday, the biggest since November 2013, data compiled by Bloomberg show. The plunge came as new supply from Suncor Energy Inc.’s Fort Hills mine helps to fill pipelines to capacity.

 

 

World Headlines

• European shares opened higher, bouncing back from losses in the previous session as Italian shares rallied on report of budget concessions from the government. The Stoxx Europe 600 Index rose 0.3%, with banks and telecoms leading the gains. Italy’s FTSE MIB Index rose 1.2%. The populist government will offer some concessions to fend off European Union pressure about its public finances, Corriere della Sera newspaper reported.
• U.S. equity index futures rose and European stocks climbed alongside the euro as news the Italian government may rein in spending helped sooth investor nerves. The country’s bonds surged as Treasuries and bunds slipped. Meanwhile, Treasury yields remain near the top of the recent range after Federal Reserve Chairman Jerome Powell welcomed wage growth but expressed confidence that low unemployment won’t spur a takeoff in prices that forces more aggressive tightening.
• Asian shares dropped for a third straight day, as oil climbed to the highest since 2014 and the greenback held close to a three-week high. The MSCI Asia Pacific Index fell 0.6 percent to 162.70 as of 4:29 p.m. in Hong Kong. Japan’s Topix index retreated 1.2 percent, while Hong Kong’s Hang Seng Index slipped 0.1 percent after dropping the most in a month on Tuesday. India’s Sensex gauge lost 0.7 percent with high oil prices fueling inflation concerns. Markets in China and South Korea are closed for holidays.
• Oil steadied near the highest level in almost four years as fears of a supply crunch outweighed expectations for an increase in American crude inventories. Futures were trading around $75.50 a barrel in New York, up around 0.4 percent. Supply losses from Iran to Venezuela continued to rattle markets, boosting volatility and driving prices higher. The ongoing outlook for a tightening of crude markets overshadowed forecasts for a second weekly gain in U.S. stockpiles.
• Gold held onto its biggest one-day climb in more than five weeks, with some investors forced to close bets on losses as Italy’s budget confrontation with the EU prompted haven buying.
• President Donald Trump said the king of Saudi Arabia may not last two weeks without U.S. support, escalating pressure on one of his closest Arab allies to curb rising oil prices and pay for military protection. “How about our military deals where we protect rich nations that we don’t get reimbursed?” Trump told a campaign rally in the U.S. state of Mississippi on Tuesday night. “I love the king, King Salman, but I said, ‘King, we’re protecting you. You might not be there for two weeks without us. You have to pay for your military, you have to pay.’”
• Comcast Corp. sold bonds to finance its $39 billion acquisition of Sky Plc in one of the biggest corporate debt sales ever in the U.S. The Philadelphia-based cable giant sold $27 billion of unsecured bonds in 12 parts. The longest portion of the offering, a 40-year security, yields 1.75 percentage points above Treasuries, less than an initially discussed range of between 1.95 percentage points and 2 percentage points, according to a person with knowledge of the matter, who asked not to be identified as the details are private.
• In announcing preliminary results, Thomson Reuters said about $6.5 billion of shares were tendered into its substantial issuer bid/tender offer for cancellation of up to $9 billion of outstanding shares.
• Italian markets got some respite after a report that the government bowed to pressure from the European Union to trim its budget-deficit target. Government bonds snapped four days of declines and the FTSE MIB Index of shares headed for the biggest gain in more than a week after the Corriere della Sera reported that the government will seek to contain the shortfall at 2 percent in 2021, down from 2.4 percent.
• Toshiba Corp. investor King Street Capital Management is urging the Japanese manufacturer to buy back about $10 billion of its shares, ratcheting up the hedge fund’s first public activist campaign. In a letter to Chief Executive Officer Nobuaki Kurumatani dated Wednesday, New York-based King Street said Toshiba should purchase at least 1.1 trillion yen ($9.7 billion) of shares as quickly as possible. The $20 billion King Street also released a 100-plus page presentation outlining ways the company could increase its profit margins in the next 12 to 24 months.
• Schroders Plc is expected to win the mandate to manage Lloyds Banking Group Plc’s 109 billion-pound ($142 billion) portfolio of assets, the Financial Times reported, citing people briefed on the talks. Schroders offered Lloyds a share of control in its Cazenove Capital wealth-management arm to sweeten the deal, edging out BlackRock Inc. in the final round of bids, the FT reported.
• A $4.6 billion shale gas pipeline that’s already been delayed by about a year is facing yet another setback after a court vacated a key permit. A U.S. appeals court voided a federal authorization for EQT Midstream Partners LP’s Mountain Valley conduit, which is designed to carry natural gas from the Marcellus basin in Appalachia — America’s biggest reservoir of the fuel — to Southeast markets.
• New York state tax authorities have opened an investigation into allegations reported in the New York Times that President Donald Trumpand his family created their real estate empire through “instances of outright fraud,” evading taxes on hundreds of millions of dollars. The Times reported Tuesday that Trump received vastly more from his father, Fred Trump, than he has previously stated and that his father backstopped his son’s businesses during times of financial distress. In addition, the newspaper reported that the family used a variety of schemes — some potentially illegal — to minimize their taxes.
• The U.S.-China trade war is starting to alter global fuel flows. A Chinese buyer late last month swapped a cargo of U.S. liquefied natural gas for a shipment from another country, primarily to avoid new tariffs on the fuel, according to traders with knowledge of the deal, who asked not to be identified as the information isn’t public. Typically, LNG traders engineer swaps when both benefit from using the other’s cargo, usually because of location. For instance, someone with a shipment in Europe but a buyer in Asia could switch with a trader in the opposite situation, thereby saving on transport costs.
• The U.S. warned that it could resort to strikes against a new class of Russian missile unless Moscow complies with its international commitments to arms reduction. NATO defense ministers on Wednesday will discuss their concerns that Russia is building a medium-range ballistic missile in violation of the Intermediate-Range Nuclear Forces Treaty, U.S. Ambassador Kay Bailey Hutchison said.
• Suddenly, a no-deal Brexit is just one of the many unknowns pound traders need to contend with. Now the risk of a second referendum or even another U.K. election needs to be taken on board by investors. The biggest worry is still that Britain will crash out of the European Union without an economic agreement, with talks deadlocked and time running out. Analysts surveyed by Bloomberg see sterling sliding almost 8 percent to $1.20 on such an outcome.
• General Electric Co. may have to pay a little more the next time it wants to make payroll. The manufacturing giant lost the near-top credit ratings on its short-term debt on Tuesday. That downgrade will likely force the company to pay more to borrow in at least one credit market, namely the market for bonds known as commercial paper. GE relies on that market to help fund its daily operations, and it used to be one of the biggest issuers of the securities. The manufacturer had on average around $16.6 billion of commercial paper outstanding during the second quarter. At the end of June, it had about $115.6 billion of total debt, of which about $6 billion was commercial paper, according to company filings.
• Altice Europe NV, the telecom carrier owned by billionaire Patrick Drahi, has attracted initial bids from KKR & Co., Allianz SE’s private equity division and others as it looks for investors to help roll out a high-speed network in France, people familiar with the matter said. Ontario Municipal Employees Retirement System and Macquarie Group Ltd.are also among bidders for a stake in the carrier’s French fiber-to-the-home venture, the people said, asking not to be identified because the auction is private. The bids are for a 40 percent to 60 percent stake and value the project at about 1.5 billion euros to 3 billion euros ($1.7 billion to $3.5 billion), a range that’s likely to go higher as the auction progresses, they said.
• Aston Martin shares tumbled on their trading debut as investors balked at a sale price that put the U.K. carmaker on a par with larger and more profitable Italian competitor Ferrari NV. The stock fell as much as 6.6 percent on Wednesday from its initial public offering price of 19 pounds ($24.7), a figure that gave the Gaydon, England-based company a market capitalization of 4.3 billion pounds.
• Sembcorp Industries Ltd. was the only party that submitted a final bid for beleaguered Hyflux Ltd.’s Tuaspring project, which includes Southeast Asia’s biggest desalination plant, people with knowledge of the matter said. Sembcorp’s offer was below Tuaspring’s book value and will not be enough to fully pay back loans to the project’s main creditor, Malayan Banking Bhd., according to the people. Keppel Corp., which had earlier shown interest in the asset, didn’t submit a binding bid by the Oct. 1 deadline, the people said, asking not to be identified because the information is private.

 

*All sources from Bloomberg unless otherwise specified