September 11th, 2018
Daily Market Commentary
- Two of the most storied names in German department stores are combining in a deal orchestrated by an Austrian real estate billionaire, highlighting the pressures facing traditional retailers amid the rise of Amazon.com Inc. Karstadt, controlled by Rene Benko’s Signa Holding GmbH, agreed to take over Galeria Kaufhof, owned by Saks Fifth Avenue parent Hudson’s Bay Co., creating a retail company with 5.4 billion euros ($6.3 billion) in revenue. Benko has long wanted to merge the brands, having had an overture rejected as recently as February.
- Bank of Montreal’s chief executive officer says he doesn’t need to make another acquisition to meaningfully lift earnings from the U.S. “If we continue doing the things that we’re doing organically, I could see a third of the bank coming from U.S. earnings,” Chief Executive Officer Darryl White, 47, said Monday in an interview at Bloomberg’s New York headquarters. “To get beyond that you’d have to resume the M&A agenda.” The U.S. contributions could reach a third of the Toronto-based lender’s overall earnings within three to five years, underpinned by stronger economic growth, he said. That’s up from 24 percent in fiscal 2017, before White took over, and 28 percent for the three months ended July 31. Bank of Montreal’s U.S. lender, BMO Harris Bank, alone earned C$1.02 billion ($760 million) in the fiscal year’s first three quarters, and is on pace for an annual record.
- Activist investor John Paulson said he would be willing to meet Detour Gold Corp.’s three recently appointed directors to see whether they would be suitable to join the slate of nominees he’s put forward to replace the miner’s entire board. Toronto-based Detour said last month two board members were stepping down and would be replaced by three new directors amid pressure from Paulson to explore a sale. Paulson said in a letter to shareholders Tuesday he welcomed the expansion of the board while questioning the motives behind the move.
- European equities opened little changed as mining shares slumped with metals and as investors eyed further trade conflict developments between the U.S. and China. The Stoxx Europe 600 Index was up less than 0.1 percent. Oil shares led the gains as Brent crude recovered. Miners, including BHP Billiton and ArcelorMittal, slumped along with most metals on the London Metal Exchange amid speculation that China winter curbs on mills may be milder than had been expected, raising possibility of increased supply.
- Miners and carmakers dropped in the Stoxx Europe 600 Index and contracts on the Dow and S&P 500 erased earlier advances. Reuters reported that China is set to ask the World Trade Organization for authorization to impose trade sanctions on the U.S. The pound edged higher, extending gains after European Union chief Brexit negotiator Michel Barnier said a deal with the U.K. is “realistic” and “possible” within eight weeks. Worsening relations between the U.S. and China remain at the top of the agenda, with the Trump administration ready to boost tariffs on even more goods.
- Asia’s stocks were mixed with the benchmark index little changed amid lingering concern over the trade tension between U.S. and China. Hong Kong’s Hang Seng Index slid into a bear market while Japanese stocks rallied for a second day. The MSCI Asia Pacific Index held at 159.05 as of 4:27 p.m. in Hong Kong as one stock advanced for each that fell. The Hang Seng Index fell 0.7 percent, extending its loss from January peak to more than 20 percent.
- Brent crude, the global oil benchmark, traded at more than a $10 a barrel premium to U.S. futures as fears of lost Iranian output buoyed one grade and a supply glut undermined the other. The premium for London-traded Brent, which is more sensitive to global supply disruptions than American prices, was at its highest in more than two months. South Korea has become the first of Iran’s top-three oil customers to cut imports to zero before U.S. sanctions take effect in November. In the U.S, crude inventories at the storage hub of Cushing, Oklahoma, may have increased for a fifth week, according to estimates compiled by Bloomberg.
- Gold mining companies continued their downward slide, falling to the lowest since February 2016 as the precious metal posted five straight monthly losses.
- Florence continued to move toward the U.S. East Coast, poised to become the strongest hurricane in almost 30 years to hit the Carolinas as more than 1 million people began fleeing the American coastline. North Carolina’s Outer Banks are under mandatory evacuation orders and four states declared emergencies as the Category 4 storm barreled toward the coast. Already estimated to bring as much as $27 billion in damages, Florence is aiming for landfall late Thursday or early Friday somewhere between Charleston, South Carolina and Norfolk, Virginia.
- U.K. wage growth accelerated over the summer amid the lowest jobless rate in more than four decades. Earnings excluding bonuses rose an annual 2.9 percent in the three months through July, more than the 2.8 percent economists forecast. In July alone, basic wages rose 3.1 percent, the most since 2015, and vacancies are at record levels, the Office for National Statistics said Tuesday.
- China’s Anta Sports Products Ltd. is gearing up for the Beijing Winter Olympics four years from now with a 4.7 billion-euro ($5.5 billion) approach for one of the world’s biggest makers of ski equipment. Amer Sports Oyj of Finland, which owns the Atomic and Salomon brands, confirmed a Bloomberg News report that it has received takeover interest from an investor group backed by the Chinese company, which already sells the Descente brand of winter-sports wear in China.
- While the Bank of Japan has accepted purchases of government bonds falling well short of its guideline for the past two years, policy makers are unlikely to allow such a big divergence between the BOJ’s stocks target and the actual level of buying. Many officials at the central bank think the board will need to reduce the 6 trillion yen ($54 billion) annual target for exchange-traded funds if the July decision to buy in line with market conditions brings a sustained decline in its purchases, according to people with knowledge of discussions at the BOJ.
- Carlyle Group LP raised its largest-ever U.S. real estate fund as money keeps flowing to alternative asset managers. The Washington-based firm brought in $5.5 billion for residential and commercial real estate investments in its eighth such fund, about $500 million more than it had targeted, according to the company. Carlyle’s seven previous real estate funds have bet on properties including apartment buildings, senior and student housing, self-storage and data centers. Robert Stuckey has been running the group for about 20 years.
- Amazon.com Inc. said sales from its business-to-business platform hit an annualized rate of $10 billion globally as it adapted its online retail operations for consumers into an international enterprise serving offices, hospitals and factories. The Seattle-based internet giant launched Amazon Business in the U.S. in 2015 and reached $1 billion in sales a year later. It now operates in eight countries, including Germany, Japan and India. In the U.S., customers include large schools and hospitals, more than half of all Fortune 100 companies as well as local governments.
- Boeing Co. painted an optimistic forecast for China, an aviation market soon poised to become the world’s biggest. The planemaker also needs to overcome a tit-for-tat trade war that President Donald Trump is ratcheting up. The country will need 7,690 new planes worth $1.2 trillion over the next two decades, the Chicago-based planemaker said in Beijing Tuesday. That’s a 6 percent boost from its projections a year ago, as China’s middle class continues to grow and seek out air travel, according to Randy Tinseth, Boeing’s vice president of marketing.
- The White House delivered a whipsaw message to North Korea on Monday, announcing it’s ready to start planning a second meeting with Kim Jong Un just hours after President Donald Trump’s top national security adviser said nuclear talks were stalled. Press Secretary Sarah Huckabee Sanders told reporters that Trump had received “a very warm, very positive letter” from Kim seeking a follow-up meeting. There’s no evidence Pyongyang has taken any meaningful steps toward eliminating its nuclear arsenal since the leaders’ first historic meeting in June in Singapore.
- ING Groep NV, under fire after paying one of the biggest fines ever given to a Dutch lender, ousted Chief Financial Officer Koos Timmermans, who had once been responsible for the division caught up in a money-laundering probe. The 22-year ING veteran will stay in his position until a successor is found, the Amsterdam-based bank said Tuesday, adding that it was appropriate for a senior executive to take responsibility for the scandal. During part of the period investigated by Dutch prosecutors, Timmermans headed the bank’s Netherlands unit, which was at the center of the probe.
- China’s sinking stocks are on the verge of an unwelcome milestone. The Shanghai Composite Index closed 0.2 percent lower on Tuesday to within 10 points of where it bottomed out in 2016, having briefly breached that level in the afternoon before paring the decline. If the measure drops further, it’ll be trading at the lowest since November 2014, before the nation’s stock boom and subsequent $5 trillion bust.
- Ryanair Holdings Plc pilots and flight attendants in Germany will walk out Wednesday, meaning many of its services in and out of the country may not operate. The latest strike will follow the scrapping by Europe’s biggest discount carrier of more than 400 flights on Aug. 10 amid walkouts in five nations including Germany, though since then it has secured deals in a number of countries.
- U.K. multinationals have revealed a possible $1.1 billion tax bill resulting from an EU state aid probe into a U.K. tax relief, just months before the island nation exits the bloc. The figure is a landmark in the fallout of the European Commission’s investigation, demonstrating its potential impact across a range of sectors. A final ruling is expected near the end of the year. After that, companies or the British government can appeal the ruling, making it likely that the eventual outcome may last beyond the U.K.’s EU exit. So far 21 companies have revealed, in regulatory filings, 877 million pounds ($1.1 billion) in potential tax liabilities from the investigation, according to data compiled by Bloomberg Tax.
- Italy raised a preliminary 2.48 billion euros ($2.88 billion) in an auction of airwaves for fifth-generation mobile services, a test of how much telecom companies are ready to pay for a technology whose commercial potential is still unknown. Telecom Italia SpA, Vodafone Group Plc’s local unit, Wind Tre SpA, Iliad SA and Swisscom AG’s Italian unit Fastweb SpA all bid for the spectrum, Italy’s development minister said in a statement late Monday. As a newcomer, France’s Iliad had a special right to bid for a reserved package of 700-megahertz frequencies, the most valuable. It paid about 676.5 million euros, according to the statement.
- ArcelorMittal has raised its bid for indebted Essar Steel India Ltd. to about 420 billion rupees ($5.8 billion), people with knowledge of the matter said. The world’s biggest steelmaker recently sent a letter to Essar Steel’s lenders informing them of its new proposal, the people said, asking not to be identified because the information is private. The company has offered to repay all of Essar Steel’s secured debt, one of the people said. ArcelorMittal’s earlier bid was about 340 billion rupees, the people said.
- Renesas Electronics Corp., the second-biggest supplier of semiconductors used in cars, plans to acquire Integrated Device Technology Inc. for about $6.7 billion to expand beyond the automotive sector into data centers and communications devices. The Japanese company will pay $49 a share, it said in a statement, about a 16 percent premium to the U.S. company’s Monday close and 29 percent higher than the share price when talks were first disclosed. That propelled Renesas’s stock 4.4 percent higher in Tokyo, its biggest jump in almost two months.
- The Saudi Agricultural & Livestock Investment Co. is close to acquiring a farming company in Ukraine, a grain-producing powerhouse in the Black Sea region, according to people familiar with the matter. The U.K. unit of Saudi Arabia’s state-run Salic is nearing a deal to buy Mriya Agro Holding Plc, which grows crops including wheat, barley, corn and potatoes in western Ukraine, said the people, who asked not to be identified because the information is private. The acquisition would take the Salic-operated farming area in Ukraine to just over 200,000 hectares (494,000 acres), they said.
- Altaba Inc., the holding company formed from the overseas investments of the former Yahoo! Inc., will raise about $4.34 billion by selling its entire stake in Yahoo Japan Corp. The company increased the size of the deal to include its entire 1.36 billion-share holding after initially saying it planned to sell about 750 million shares to raise about $2.5 billion, according to terms of the deal obtained by Bloomberg.
- United Rentals Inc. surged the most in more than a year as the industrial-equipment giant announced a $2.1 billion acquisition to broaden its reach in North America. The purchase of competitor BlueLine Rental adds about 46,000 rental assets to the buyer’s fleet in areas such as the U.S. coasts and Ontario. The move is the latest in a string of acquisitions by United Rentals designed to fortify its standing as the nation’s biggest equipment-leasing company.
- American carmakers are losing ground in a shrinking Chinese market, and their problems are mostly tied to a lack of competitiveness rather than the trade war, an industry body said. The market share of U.S. brands fell to 10.7 percent in the first eight months of 2018 from 12.2 percent a year earlier, according to the China Association of Automobile Manufacturers. The drop was caused by companies including Ford Motor Co. not refreshing their lineups in a timely manner, Xu Haidong, the association’s assistant secretary general, said Tuesday.
- Amgen Inc.’s blockbuster arthritis drug Enbrel already has competition from copycat drugs in Europe. But the company is still fighting to retain its dominance in the U.S. and keep a version of the drug by Novartis AG’s Sandoz unit off the market. In a federal trial that begins Tuesday in Newark, New Jersey, Novartis is challenging five patents related to Enbrel. If Novartis is successful, its copycat Erelzi could enter the U.S. market, likely eroding sales of Amgen’s biggest drug.
*All sources from Bloomberg unless otherwise specified