September 16th, 2019
Daily Market Commentary
- Canadian stocks have broken out of their summer stupor, handing investors September’s best first half in seven years as they finally reached a record high. Now things are about to get interesting, according to strategists who predicted the rally. The S&P/TSX Composite Index rose 0.2% Friday, capping the week at a new peak of 16,682.42 as both the U.S. and China made moves to ease tensionsahead of talks expected in the coming weeks. After hitting a previous peak in April, stocks traded in a narrow range through summer even as volatility soared amid concerns surrounding global economic growth.
- Reverse mortgages are surging in Canada as more older people join the country’s debt bandwagon. If you’re 55 or older, you can borrow as much as 55% of the value of your home. Principal and compound interest don’t have to be paid back until you sell the home or die. To keep the loan in good standing, homeowners only need to pay property tax and insurance, and maintain the home in good repair.
- Blackstone Group Inc. added new properties in Germany and The Netherlands with the purchase of a Canadian real estate trust, in deal valued at C$6.2 billion ($4.7 billion) including debt. The New York-based private equity firm agreed to pay C$16.79 a share in cash for Dream Global Real Estate Investment Trust, according to a statement from the companies Sunday. The offer is 19% higher than Dream Global’s closing price Friday in Toronto.
- New-home buyers in the Toronto region are facing some of the highest government-related charges in North America, according to a new report by Altus Group. Government-related fees can add C$222,652 ($167,660) to the cost of a new detached home, which is typically about 20% of the total price, Altus said Monday in the report, which was undertaken for a building-industry group. That’s three times more than the average charges on a detached-home across six U.S. metropolitan areas including San Francisco, Miami, Boston, New York City, Chicago and Houston, and nearly double those of Canadian cities including Ottawa, Vancouver, Calgary and Montreal.
- European stocks fell on Monday, ending a four-day winning streak as a strike on a Saudi Arabian oil facility hit risk sentiment globally, though energy stocks jumped as the price of the resource spiked higher. The Stoxx 600 Index was down 0.5% by 8:04 a.m. London time. The Stoxx Oil & Gas Index soared 3%, its best day since the beginning of the year, while airlines including EasyJet Plc and Air France-KLM fell on the higher oil price. H&M dropped 1.7% after the retailer’s third-quarter sales update.
- U.S. stock index futures dropped as global oil prices surged the most on record after a drone strike on a Saudi Arabian oil facility increased geopolitical risk concern. S&P 500 Index futures were down 0.5% at 11:32 a.m. in London, while Dow Jones and Nasdaq contracts were down 0.4% and 0.6% respectively. All futures were bouncing from lows. Brent crude soared as much as 19.5% and West Texas Intermediate added 15.5% after the news of the attack on the world’s largest crude exporter.
- Shares in Asia were mixed after China data missed estimates, with Hong Kong equities underperforming, while those in South Korea rose after a holiday. Japanese markets were closed for a holiday. Treasuries rallied, with gold and the yen also advancing. The pound retreated as Prime Minister Boris Johnson headed into his first face-to-face meeting on Brexit with European Commission President Jean-Claude Juncker.
- Oil posted its biggest ever intraday jump, briefly surging above $71 a barrel after a strike on a Saudi Arabian oil facility removed about 5% of global supplies and raised the specter of more destabilization in the region. In an extraordinary start to trading on Monday, London’s Brent futures leapedalmost $12 in the seconds after the open, the most in dollar terms since their launch in 1988. Prices have since pulled back about half of that initial gain of almost 20%, but are still heading for the biggest advance in almost three years.
- Gold and other precious metals rallied after a strike against Saudi Arabian oil facilities raised the possibility of retaliatory U.S. military action in the Middle East. Investors are seeking haven assets at the start of a week that will also see critical policy decisions from central banks including the Federal Reserve. Gold jumped as much as 1.6% as investors gauged the ramifications from the assault against the world’s top oil exporter, and palladium hit a fresh record. Secretary of State Michael Pompeo blamed Iran for the disruption; that charge was rejected by Tehran.
- JSW Steel Ltd., India’s most valuable steel producer, is predicting declines for iron ore next year as demand from biggest consumer China eases and supplies recover. Prices may trade between $80 and $85 a ton for the rest of 2019 before sliding to $60 to $65 next year, Seshagiri Rao, joint managing director of the Mumbai-based mill, said. The key steel-making raw material has benefited from “speculation” and there is no reason why ore should be trading at elevated levels of about $95, he said.
- China’s slowdown is deepening just as risks for the global economy mount, piling pressure on the authorities to do more to support growth. Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month. The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.
- Equity markets will face significant damage in a no-deal Brexit unless the European Union reverses a plan to block traders in its home territory from using London exchanges, the U.K.’s top market watchdog said. Andrew Bailey, the Financial Conduct Authority’s chief executive, called on the EU to urgently rethink its position before Oct. 31, when Britain is scheduled to leave with or without a deal. Trading in a large number of European shares will be harmed, Bailey said in a speech on Monday in which he called for a new round of talks with European counterparts to prevent a rupture in markets.
- Bankers hired for Saudi Aramco’s mammoth initial public offering plan to stick to their schedule to pitch the deal to analysts even after devastating attacks on its biggest facilities slashed oil output by half, according to people with knowledge of the matter. The energy giant aims to hold analyst presentations as planned and hasn’t told executives that its plans to list on the Saudi stock exchange as early as November may be delayed, the people said, asking not to be identified because the matter is sensitive. Aramco was considering holding presentations the week of Sept. 22, Bloomberg News previously reported.
- H. Lundbeck A/S, a Danish drugmaker struggling with a thinning product pipeline, agreed to buy Alder Biopharmaceuticals Inc. for as much as $1.67 billion to gain migraine medicines. Lundbeck will pay $18 per share in cash along with a contingent value right that entitles Alder shareholders to another $2 per share if the company’s most advanced medicine, eptinezumab, wins regulatory approval in Europe. Alder’s stock closed at $10.06 on the Nasdaq Friday. Lundbeck shares slumped as much as 4.5% in Copenhagen trading.
- China Mengniu Dairy Co. agreed to buy organic infant formula maker Bellamy’s Australia Ltd. for A$1.5 billion ($1 billion), securing a premium brand in one of the fastest-growing segments of the dairy market. The Hong Kong-based firm offered A$13.25 per share Monday for Bellamy’s, a sizable 59% premium to the stock’s last closing price. The Launceston, Tasmania-based company’s board unanimously recommended the offer. The deal, which is subject to approval from Australia’s Foreign Investment Review Board, would hand China’s second-largest dairy producer a trusted formula brand as it seeks to wrest back market share from global rivals. Bellamy’s has been producing formula in Australia since 2004 and is a stalwart of supermarket shelves there, part of the appeal for Mengniu with Chinese consumers still wary of local manufacturers after a tainted baby milk scandal more than a decade ago.
- Osram Licht AG recommended a 3.7 billion-euro ($4.1 billion) takeover bid from AMS AG over a combined offer from Bain Capital and Carlyle Group LP after AMS sought to address concerns over financing. The financial terms of AMS’s offer eclipse Osram’s lingering concerns about how the takeover will be financed, the Munich-based lighting maker said. “The management board and the supervisory board do not share AMS’ intended strategy with regard to some important strategic elements,” Osram said, outlining its decision to shareholders. “Certain issues require further coordination between Osram and AMS.”
- The United Auto Workers union is leading its first strike against General Motors Co. in 12 years, digging in for a fight over jobs and benefits that could cost the carmaker dearly for an indefinite period. The strike that took effect at midnight may cost GM about $50 million a day in earnings before interest and taxes due to lost production, Dan Levy, an analyst at Credit Suisse, said Sunday. The shares fell 3.2% in pre-market trading on Monday. While GM touted an offer to invest in plants across the U.S. and boost wages and benefits, UAW leadership has been rocked by a corruption scandal and needs to show willingness to bring the fight to an automaker that’s been scaling back its workforce.
- Iranian-backed Yemeni rebels said oil installations in Saudi Arabia remain a target after drone attacks on two major sites slashed the kingdom’s output by half and triggered a record surge in oil prices. The rebel group said its weapons could reach anywhere in Saudi Arabia. Saturday’s strikes were carried out by aircraft equipped with a new type of engine, the Houthi rebel group said. “We assure the Saudi regime that our long hand can reach wherever we want, and whenever we want,” Houthi spokesman Yahya Saree said in a statement. “We warn companies and foreigners not to be present in the facilities that were hit in the strikes because they are still within range and may be targeted at any moment.”
- Some of Europe’s top luxury brands are targeted in President Donald Trump’s latest tariff salvo, which could affect billions of dollars in exports of American-bound whiskeys, wine, Champagne, handbags and men’s suits. A panel of three World Trade Organization arbiters, as expected, said Friday the U.S. can legally impose tariffs on an array of European exports in retaliation for Europe’s illegal government aid to Airbus SE. EU sources say they expect the WTO arbiters to publicly circulate a report by month’s end that will allow new U.S. duties on a range of goods worth $5 billion to $7 billion per year, while Trump has threatened tariffs on $11 billion. Shares of French luxury conglomerate LVMH fell as much as 4.4% on Monday in Paris, with Airbus dropping as much as 5.4%. Continuing political turmoil in Hong Kong and a slowing Chinese economy have also weighed on European fashion and drinks companies.
- Purdue Pharma LP filed for bankruptcy with a more than $10 billion plan to settle claims that it fueled the U.S. opioid epidemic by illegally pushing sales of its addictive OxyContin painkiller. The Chapter 11 filing on Sunday in White Plains, New York, is designed to short-circuit more than 2,000 lawsuits against Purdue and its owners, the billionaire Sackler family. The settlement calls for the Sacklers to hand over Purdue to a trust controlled by the states, cities and counties that have sued to recoup billions of dollars they spent battling opioid addictions and overdoses.
- Apple Inc. fights the world’s biggest tax case in a quiet courtroom this week, trying to rein in the European Union’s powerful antitrust chief ahead of a potential new crackdown on internet giants. The iPhone maker can tell the EU General Court in Luxembourg that it’s the world’s biggest taxpayer. But that’s not enough for EU Competition Commissioner Margrethe Vestager who said in a 2016 ruling that Apple’s tax deals with Ireland allowed the company to pay far less than other businesses. The court must now weigh whether regulators were right to levy a record 13 billion-euro ($14.4 billion) tax bill.
- Cobham Plc shareholders approved a 4 billion-pound ($5 billion) takeover, placing the future of the U.K. defense and aerospace company in the hands of private equity firm Advent International. The buyout firm’s offer received 93.1% support, based on an initial count of proxy votes sent in ahead of an investor meeting in London today. Cobham shares rose 0.9% to 161.25 pence at 11:19 a.m. Monday. That compares with Advent’s offer of 165 pence per share in cash.
- The record oil-price surge after a drone strike on a Saudi Arabian oil facility couldn’t come at a worse time for a world economy already in the grip of a deepening downturn. While the severity will depend on how long the price spike endures, the development will further erode business and consumer confidence that already are fragile amid the U.S.-China trade dispute and slowing global demand. A manufacturing slump around the world is hammering growth in export powerhouses China and Germany.
- India’s new measures announced Saturday to revive a flagging economy through an aid to exporters isn’t as big a boost as the initial numbers suggested. Finance Minister Nirmala Sitharaman said a new tax refund program for exporters from Jan. 1 will cost the government 500 billion rupees ($7 billion) in revenue annually. But it may only amount to an additional 90 billion rupees a year in benefits to exporters, a review of budget numbers show. That’s because the new program will subsume existing export incentives, for which the government had already penciled in a revenue hit of 410 billion rupees in July. The overall size of the new scheme will be more or less similar to the existing incentives, which at present is around 400-450 billion rupees, said Alok Chaturvedi, the director general of foreign trade.
*All sources from Bloomberg unless otherwise specified