September 19th, 2018

Daily Market Commentary

Canadian Headlines

  • Canadian stocks followed their global peers higher on Tuesday as top-level Nafta negotiations are set to resume in Washington, where Republicans are warning time is running out for Canada to join the U.S.-Mexico trade deal. The S&P/TSX Composite Index rose 0.7 percent, the most in two months, with health care extending gains to the highest levels since mid-2016 as marijuana stocks rallied again. Real estate fell the most.
  • Nafta talks are picking up again as the U.S. and Canada each wait for the other to blink — and as the clock runs down to reach a deal that would likely have the easiest path for approval. U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland will meet Wednesday in Washington, their first in-person session in eight days. The two countries remain at odds on core issues, including dairy and dispute panels, and have been pressuring each other on the eve of the meeting.
  • After years of suffering through plunging energy prices and declining spending by oil-sands behemoths, Canada’s oilfield-service industry is finally seeing a light on the horizon. Companies that do everything from drilling wells to building work camps are pinning their hopes on a potential C$40 billion ($30 billion) liquefied natural gas facility on British Columbia’s Pacific Coast. LNG Canada, the Royal Dutch Shell Plc-led group behind the plant, may decide whether to build the project in the coming weeks.
  • Canada’s measure of real gross domestic product will get a boost after the legalization of marijuana adds as much as C$8 billion ($6.2 billion) to the country’s economy, according to Toronto-Dominion Bank. Statistics Canada will begin including “licensed and unlicensed cannabis activity” in its economic calculations after the Oct. 17 roll out, which will have an impact on measured growth rates in the final quarter of 2018 and first quarter 2019, TD says. The bank cautions that the increase to growth is actually an accounting illusion, because some of the cannabis-related trade already existed in the economy but wasn’t formally captured in most measures of output.
  • Tilray Inc. climbs 18 percent in pre-market trading in New York, setting the pot stock up for a third straight day of gains, after CEO Brendan Kennedy touted the company’s growth prospects in a CNBC interview with Jim Cramer Tuesday.

World Headlines

  • European equities rose at the open, led by a jump in mining stocks, with investors betting on a pickup in Chinese demand. The Stoxx Europe 600 Index climbed 0.3 percent. Danske Bank slumped as much as 6.3 percent after news the Chief Executive Officer Thomas Borgen will step down amid allegations that the bank was at the center of a major European money laundering scandal. Glencore rose 2 percent and Rio Tinto added 1.7 percent.
  • U.S. equity futures were mixed while European shares edged higher after a positive session in Asia as investors wagered the world’s two-biggest economies have time to iron out trade differences in the wake of the latest tariff salvos. The dollar slipped and yuan advanced as China said it won’t devalue its currency. Contracts on the Dow and Nasdaq pointed modestly higher, while those on the S&P 500 slipped into the red.
  • Asian stocks extended gains to a second day as investors brushed past concerns over U.S.-China trade tensions. The MSCI Asia Pacific Index rose 1.2 percent as of 4:22 p.m. in Hong Kong as China’s Shanghai Composite Index rallied after the nation vowed to retaliate with its own tariffs on $60 billion of U.S. goods. Japan’s Topix index climbed 1.5 percent, its biggest four-day advance since November 2016. The Nikkei 225 held gains after the Bank of Japan left policy unchanged at a two-day meeting.
  • Brent oil held near the highest level in a week as investors weighed a potential gain in U.S. crude stockpiles against Saudi Arabia’s comfort with prices rising above $80 a barrel. Futures in London were 0.1 percent lower near $79 a barrel after Tuesday’s 1.3 percent gain. Saudi Arabia believes it may no longer be possible to avoid higher prices as U.S. sanctions on Iranian exports crimp supply, according to people familiar with the kingdom’s view. Meanwhile, an industry report Tuesday showed U.S. crude inventories increased last week, defying expectations for a decline ahead of government data due Wednesday.
  • Gold advances as investors weigh developments in the U.S.-China trade war and await confirmation of the Fed’s rate hike strategy. Palladium climbs to highest in more than three months.
  • U.K. inflation unexpectedly accelerated in August, boosted by the cost of theater shows, computer games, transport fares and clothing. The jump to 2.7 percent from 2.5 percent may raise questions about how quickly inflation will return to the Bank of England’s target. The central bank increased interest rates last month to tame emerging price pressures, and some economists were expecting inflation to slow to the 2 percent goal by year end, earlier than officials forecast in August.
  • Neoen SA, the renewable energy project developer controlled by French billionaire Jacques Veyrat, plans to raise about 450 million euros ($525 million) in an initial public offering, which would be the largest in France this year. The company, which already has 2 gigawatts of clean power capacity in operation and under construction, will use the proceeds to fund its plans to add capacity at its power plants, Paris-based Neoen said in a statement Wednesday. A share sale could value the company at about 1 billion euros, people familiar with the matter said previously.
  • Tesla Inc. could raise funds as soon as this year as Elon Musk’s company ramps up production and prepares for maturing debt, analysts at Morgan Stanley predict. The company, whose stock has slumped 25 percent in the past six weeks amid a string of controversies, could raise $2.5 billion in equity in the fourth quarter from investors that have a strategic interest in its business model, Morgan Stanley analysts including Adam Jonas wrote in a note dated Sept. 18 outlining various possibilities.
  • State-owned China Merchants Group is considering a sale of pallet maker Loscam amid interest from investors including Asian buyout firms, people familiar with the matter said. The Hong Kong-based conglomerate is working with financial advisers on the potential divestment of a majority stake in Loscam, the people said, asking not to be identified because the matter is private. A deal could value the business at about $1 billion, said the people.
  • AutoNation Inc. Chief Executive Officer Mike Jackson, who rose from a mechanic at a Mercedes-Benz dealership to lead the top automotive retailer in the U.S., plans to transition to executive chairman next year after leading the company for nearly two decades. Jackson, 69, will remain with AutoNation through 2021, and search firm Spencer Stuart will hunt both within and outside the company for his replacement as president and CEO, according to a statement. An outspoken advocate for the auto industry, Jackson has previously expressed a reluctance to retire, once saying he emulated the longevity of mogul Roger Penske, who’s still running his car retailing, trucking and racing empire at age 81.
  • Inc.’s advertising business is gaining faster than expected in a market dominated by Facebook Inc. and Google. The world’s biggest online retailer will generate $4.61 billion in U.S. ad sales this year, which represents 4.2 percent of the total digital ad market, EMarketer Inc. estimated Wednesday in a report. The research firm previously projected Amazon’s ad revenue this year would be $2.89 billion. The revised number reflects an accounting change by Amazon as well as increased demand, EMarketer said.
  • Danske Bank A/S Chief Executive Officer Thomas Borgen will step down amid allegations his bank was at the center of a major European money laundering scandal with as much as $234 billion flowing through a tiny Estonian unit. The laundromat case has shocked Denmark, a country generally associated with some of the world’s lowest levels of corruption and highest levels of transparency. Criminal complaints against Danske have so far suggested its Estonian unit was used to launder as much as $9.1 billion between 2007 and 2015, with the illicit funds stemming mostly from Russia. Official investigations are ongoing in Denmark and Estonia and Danish media reported last month that U.S. authorities are also looking at the case.
  • A bad year for KPMG just got worse. The accounting giant admitted misconduct in relation to reports it filed to U.K. regulators on Bank of New York Mellon Corp.’s compliance with rules on client assets in 2011. The case adds to KPMG’s woes after the Financial Reporting Council fined the firm 2.1 million pounds ($2.8 million) in August and 3.15 million pounds in June for violating auditing rules.
  • The Bank of Japan left its monetary stimulus program unchanged as it settled in to gauge the impact of its first policy adjustments in nearly two years in July. The central bank maintained its 10-year bond yield target, asset purchases and guidance on interest rates at the end of a two-day meeting Wednesday. The result was predicted by all 51 economists surveyed by Bloomberg.
  • Coal exports from Indonesia will be restrained this year, which could frustrate a plan by the government to ease a burgeoning trade deficit while keeping prices elevated, according to an industry group. Producers in the world’s largest shipper face an order backlog of 18 months as they aren’t able to get hold of additional mining equipment, Pandu Sjahrir, chairman of the Indonesian Coal Mining Association, said in an interview in Jakarta. The slow rampup in supply will probably keep coal prices buttressed at about $100 a metric ton through the end of next year, he said.
  • A Blackstone Group LP unit that buys stakes in alternative asset managers is nearing a deal for a minority investment in New Mountain Capital LLC, according to people familiar with the matter. Blackstone Strategic Capital Holdings is in talks to acquire less than 10% of New Mountain, said one of the people, who asked to not be identified because the information is private. The New York-based firm plans to use proceeds from the deal for growth investments, this person said.
  • Hillhouse Capital Group, the Chinese investment firm, raised $10.6 billion for its third and largest buyout fund, as money pours into the private equity industry from investors seeking higher returns than volatile markets offer. The fund, the world’s third-largest private equity raising completed this year, will seek opportunities in health care, consumer, technology and services industries, Hillhouse said in a statement on Wednesday. The fund was “heavily oversubscribed,” the firm said. Its initial target was about $6 billion, people familiar with the matter said earlier this year.
  • Linde AG and Praxair Inc. are inching closer to U.S. antitrust approval for their $45 billion merger as a consortium of Messer Group GmbH and CVC Capital Partners is set to buy additional assets to allay antitrust concerns, people familiar with the matter said. CVC and German industrial-gas supplier Messer overnight updated the presentation for their debt roadshow, according to documents seen by Bloomberg News. Marketing for meetings in London on Wednesday now includes an extra three air-separation plants, a liquid-argon contract, a carbon dioxide facility and two depots, said the people. The assets generate about $20 million in earnings, and could be valued at about $200 million, they added.

*All sources from Bloomberg unless otherwise specified