September 18th, 2018

Daily Market Commentary

Canadian Headlines

  • Canadian Foreign Affairs Minister Chrystia Freeland said lower-level negotiators continue to hold discussions in Washington in talks she described as continuous and intensive.
  • Enbridge Inc. and Enbridge Income Fund Holdings Inc. today announced that they have entered into a definitive arrangement agreement under which Enbridge will acquire all of the issued and outstanding public common shares of ENF, subject to the approval of ENF shareholders. Under the terms of the Agreement, each common share of ENF will be exchanged for 0.7350 of a common share of Enbridge and cash of $0.45 per ENF Share. ENF shareholders will also be entitled to receive the Enbridge fourth quarter dividend as described below. The Agreed Exchange Ratio represents an increase of 9.8% relative to the unaffected ENF exchange ratio on May 16, 2018, and 11.3% inclusive of the Cash Component.
  • Tilray Inc. has received approval from the Drug Enforcement Administration to import cannabis into the U.S. for medical research, the first Canadian company to do so. Tilray will work with the University of California San Diego’s Center for Medicinal Cannabis Research on a clinical trial to test whether the drug can effectively treat essential tremor, a common neurological disorder that causes uncontrollable shaking and affects more than 4 percent of people over age 65.

World Headlines

  • While the timeline for fresh levies on $200 billion of Chinese goods announced by President Donald Trump represents an escalation of the protectionist dispute, it will be months before the tariffs hit the 25 percent level some investors have been preparing for. Asia equities recovered from early weakness, with benchmarks in Japan and Shanghai jumping. The Stoxx Europe 600 Index also overcame a soft start as automakers and miners advanced.
  • U.S. stock index futures inch higher driven by Nasdaq contracts after the U.S. administration spared some Apple Inc. products from the next round of tariffs imposed on Chinese goods.
  • Global markets reacted to the latest escalation of the U.S.-China trade spat with relative calm on Tuesday. Asian stocks jumped and S&P 500 futures edged higher with European shares after America set its next round of tariffs at 10 percent and Beijing pledged to retaliate.
  • Oil rose as Saudi Arabia was said to be comfortable with Brent crude exceeding $80 a barrel. Futures in London added as much as 1.7 percent. The world’s biggest crude exporter is content to see the global benchmark advance, at least in the short term, as markets adjust to the impact of U.S. sanctions on Iranian supply, according to people familiar with the kingdom’s view. Iranian oil exports have plunged to a 2 1/2-year low, tanker-tracking data shows.
  • Gold steady, recovering from initial slump, as investors assess impact of Trump administration’s biggest barrage of tariffs yet against China and await details of Beijing’s retaliation.
  • Copper rebounded from earlier losses in London even as Beijing vowed to strike back after the U.S. confirmed plans to impose tariffs on Chinese goods. London Metal Exchange copper rose as much as 1.8 percent and mining equities climbed, supported by signs that demand is holding up. The metal is also gaining from optimism that the application of broader U.S. tariffs next week will prompt China to invest more heavily in areas like infrastructure to shore up its domestic economy.
  • China vowed to retaliate after the U.S. said it will impose a 10 percent tariff on about $200 billion in Chinese goods next week and more than double the rate in 2019. The statement from the Ministry of Commerce didn’t note specific actions, though China has previously said it would respond with levies on $60 billion worth of U.S. goods. Such a move risks deepening the standoff even further, with President Donald Trump saying in a statement on Monday the U.S. will immediately pursue additional tariffs on about $267 billion of Chinese imports if Beijing hits back.
  • Visa Inc. and Mastercard Inc. agreed to pay up to about $6.2 billion to end a long-running price-fixing case brought by merchants over card fees. The lawsuit has been one of many flashpoints in the battle between retailers and financial firms over the $90 billion that U.S. merchants spend every year on swipe fees. Visa, Mastercard and various financial institutions will pay $900 million in addition to about $5.3 billion agreed under a 2012 settlement, according to a filing.
  • WuXi AppTec Co., the Chinese contract medical researcher, has submitted an application for a Hong Kong share sale, according to people with knowledge of the matter. The offering could raise more than $1 billion, the people said, asking not to be identified because the information is private. The Shanghai-listed shares of WuXi AppTec have nearly quadrupled since they began trading in May, giving the company a $13 billion market value.
  • China Western Power Industrial Co. has signed a $250 million deal with Lyon Infrastructure Investments 1 Pty, a unit of Lyon Group, to supply panels for solar storage projects in Australia. The power project contractor has signed a framework agreement to procure 630 megawatts of panels for the Australian solar developer, China Western said in a statement dated Sept. 14 to the Shenzhen Stock Exchange. Shenzhen Wanzhao Energy Interconnection Technology Co. will assist China Western with the procurement and provide technology support.
  • Aggressive and undiplomatic, certainly, but also extremely effective. With nearly 50 days to go before new U.S. oil sanctions against Iran enter into force, President Donald Trump has already managed to crush the country’s petroleum exports, dealing severe economic damage to Tehran. Iranian oil exports have plunged about 35 percent since April, the month before Trump ripped up the diplomatic deal that Barack Obama negotiated to curtail Tehran’s nuclear program and announced new oil sanctions.
  • TomTom NV shares fell the most in over seven years following news that a partnership between Renault SA, Nissan Motor Co, Mitsubishi Motors Corp and Alphabet Inc might leave the Dutch digital map maker hanging. Shares in TomTom slumped as much as 29 percent in Amsterdam, after the carmakers venture said they are partnering with Google to use the Android operating system in their dashboards.
  • Agrokor d.d. will start its search this week for an investment bank to help find lenders willing to refinance a 1 billion-euro ($1.16 billion) roll-up loan, the last major step in its rehabilitation after a settlement agreement by creditors in July, a top company executive said. The one-year rescue loan, arranged in 2017, helped the largest retail and food producer in the former Yugoslavia prop up finances after it teetered on bankruptcy. Following an extension in June, the interest rate climbed to 8 percent and will increase gradually to 14 percent in September 2019. Securing banks to refinance the loan would strengthen Agrokor’s balance sheet. Several foreign banks have expressed interest and the plan that may be in place by the end of January, or earlier.
  • India’s growth monikers — the world’s fastest-growing major economy and the fastest-growing oil user — might make for good headlines, but when juxtaposed with the less-flattering description of its currency they pose a problem for Prime Minister Narendra Modi. The rupee, Asia’s worst-performer so far this year, has fueled gasoline and diesel prices to a record high and fanned public displeasure with general elections less than eight months away. It prompted Modi’s ruling Bharatiya Janata Party to say on Saturday the government will soon come up with an action plan to rein in fuel prices.
  • Saudi Arabia is now comfortable with Brent oil prices rising above $80 a barrel, at least in the short term, as the global market adjusts to the loss of Iranian supply from U.S. sanctions, according to people familiar with the kingdom’s view. The world’s largest exporter has tried to keep crude from trading above $80 so far this year, in part because U.S. President Donald Trump sent several tweets in May and June calling for OPEC to rein in prices as they flirted with that level.
  • Marsh & McLennan Inc. agreed to buy Jardine Lloyd Thompson for about 4.3 billion pounds ($5.7 billion) to expand its global offering of reinsurance and consulting services, adding to the frenetic pace of deal activity in the industry. The New York-based purchaser said it aims to become the world’s leading company offering advice on risk, strategy and personnel. The purchase of JLT will strengthen its specialty risk broking, expand its global reinsurance network and enhance its position in Asia and Latin America, it said. The companies estimate that Marsh & McLennan’s revenue will rise to about $17 billion as a result of the acquisition.
  • Uber Technologies Inc. is in discussions to buy its Dubai-based rival Careem Networks FZ as the ride-hailing giant expands in the Middle East, people familiar with the matter said. A deal could value Careem at $2 billion to $2.5 billion, the people said, asking not to be identified because the talks are private. Negotiations are ongoing and Careem’s management is working to convince the firm’s shareholders of the merits of a deal, the people said. No final decisions have been made, and the companies may decide against the transaction, they said.
  • Nestle SA agreed to sell Gerber Life Insurance to closely held Western & Southern Financial Group for $1.55 billion in cash as the world’s largest food company focuses on businesses like coffee, bottled water and pet care. Gerber Life had sales of $856 million last year, and statutory capital and surplus of about $285 million as of June 30, Nestle said. While the transaction doesn’t include Nestle’s Gerber Products business, which houses the baby food and baby-care products, the Ohio-based buyer will market life policies under the Gerber brand.
  • Morgan Stanley’s private equity arm is seeking to sell Noah Education Holdings Ltd., a Chinese school operator that delisted from the U.S. stock market four years ago, people with knowledge of the matter said. An affiliate of Morgan Stanley Private Equity Asia is in talks with potential buyers for Noah Education, which could fetch about $400 million, according to the people. The company has attracted interest from buyout firms and other school operators, the people said.
  • Russia warned angrily it may respond to “hostile” actions by Israel after one of its military reconnaissance planes was downed mistakenly by Syrian forces fighting off an attack by Israeli warplanes. The spike in tensions came a day after Russia called off a campaign against the last major opposition-held area in Syria, preventing for now an escalation in the seven-year war, after President Vladimir Putin and his Turkish counterpart Recep Tayyip Erdogan reached a deal on Monday. Still, unlike a 2015 incident in which Turkey shot down a Russian warplane, sparking a yearlong breach in ties, the Kremlin gave no sign the latest episode would lead to broader consequences.
  • Japanese billionaire Yusaku Maezawa will hitch the first SpaceX ride around the moon and plans to invite as many as eight artists to join him — with the rocket company’s founder Elon Musk possibly signing up for the space flight. Maezawa will fly on Space Exploration Technologies Corp.’s BFR rocket on the trip in 2023, Musk announced Monday. SpaceX expects Maezawa, 42, to be the first private passenger to make the journey that only two dozen astronauts have been on during the Apollo era that ended 46 years ago.

*All sources from Bloomberg unless otherwise specified