September 25th, 2018

Daily Market Commentary

Canadian Headlines

• Canadian stocks followed their global peers lower amid rising trade tensions. The loonie weakened against the dollar for a second day as concern that Nafta will take a back-burner to the China impasse is putting a damper on traders’ enthusiasm for the Canadian dollar. Prime Minister Justin Trudeau and President Donald Trump are not expected to sit down at the United Nations General Assembly this week as Nafta negotiations hang in the balance, the Toronto Star reported.
• Gold miners earned the ire of investors including billionaire hedge-fund manager John Paulson for entering into bad deals that destroyed shareholder value in the past. Shareholders of the two companies announcing a merger Monday signaled they think this time may be different. Barrick Gold Corp. Executive Chairman John Thornton said his company isn’t paying a premium under its agreement to buy Randgold Resources Ltd. The decision came after the company has been criticized for its “undisciplined growth and poor returns” in the past.
• Export Development Canada turned down Uganda’s requests to finance purchases of four Bombardier Inc. jets, spurring the East African country to seek credit elsewhere as it revives its national airline. Uganda’s government said in July it planned to contact export credit agencies in Canada and Europe to fund acquisition of four Bombardier Inc. jets, each at $27.7 million, and two Airbus SE planes at $108 million each. The costs include crew-training.

World Headlines

• European equities advanced as oil stock investors continued to celebrate higher Brent and as Glencore announced a buyback increase. The Stoxx Europe 600 Index was up 0.2 percent. Oil stocks continued their recovery as Brent traded above $80 a barrel, with Shell adding 0.8 percent and BP climbing 0.6 percent. Glencore surged 2.6 percent after saying it will increase its share buyback program by as much as $1 billion.
• Global risk assets face a test as the U.S. and China dig in for what could be a long and bruising trade war, following the Asian nation’s decision to call off planned talks after the latest round of tariffs. Adding to concerns are reports that U.S. Deputy Attorney General Rod Rosenstein, who oversees a probe into Russian interference in the American election, may be poised to leave his post, while the nomination of Brett Kavanaugh to the U.S. Supreme Court continues to be mired in controversy.
• Asian stocks swung between gains and losses amid growing concern about the outlook for global trade and political ructions across the U.S. and Europe. Markets in South Korea and Hong Kong were closed for holidays. The MSCI Asia Pacific Index added 0.1 percent to 165.35 as of 4:51 p.m. in Singapore, with consumer staples leading gainers and energy stocks falling. Japan’s Topix rose a seventh day, its longest winning streak since October, as the market reopened from a holiday.
• Brent crude extended gains from the highest level in almost four years as banks and trading houses formed a chorus of voices arguing that prices may spike after OPEC and its allies rebuffed President Donald Trump’s call to rapidly boost production. Futures in London rose as much as 1.2 percent after a 3.1 percent advance Monday. Mercuria Energy Group Ltd. and Trafigura Group expect the return of $100 a barrel, last seen in 2014, due to a potential loss in Iranian supply. Bank of America Corp. joined JPMorgan Chase & Co. in predicting higher prices.
• Gold continues to hover around $1,200/oz, with the Federal Reserve expected to raise rates for the third time this year at a meeting on Wednesday.
• The European Union, China and Russia backed a mechanism to allow “legitimate” business to continue with Iran, a plan aimed at sidestepping American sanctions and allowing international trade to continue unimpeded as President Donald Trump pursues his “America First” agenda. The push for such a channel, announced by EU foreign affairs chief Federica Mogherini in New York late on Monday, reflects growing calls in countries such as France and Germany for the EU to adopt tools that will allow it to pursue its foreign-policy goals with less recourse to an unpredictable U.S. ally. A chief catalyst was Trump’s decision to withdraw from the Iran nuclear deal even as world powers urged the U.S. to stick to its mandate.
• Comcast Corp. boosted its ownership of Sky Plc above 30 percent as it rushes to buy up shares after trumping rival 21st Century Fox Inc. with a $39 billion bid for the British satellite television company. Comcast made the market purchases at 17.28 pounds per share, the price of its knockout offer in a weekend auction for Sky, and is seeking to buy more, the company said Tuesday. The purchases show the largest U.S. cable carrier is wasting no time in trying to secure the more than 50 percent of Sky it needs to take control. Sky shareholders have until an Oct. 11 deadline to tender their stock to Comcast.
• The founders of Instagram are leaving Facebook Inc. after growing tensions with Chief Executive Officer Mark Zuckerberg over the direction of the photo-sharing app, people familiar with the matter said. The stock dropped 2 percent in pre-market trading Tuesday. Kevin Systrom and Mike Krieger, who have been at the company since Instagram’s acquisition by Facebook in 2012, had been able to keep the brand and product independent while relying on Facebook’s infrastructure and resources to grow. Lately, they were frustrated with an uptick in day-to-day involvement by Zuckerberg, who has become more reliant on Instagram in planning for Facebook’s future, said the people, who asked not to be identified sharing internal details.
• Oman’s Renaissance Services SAOG, a service provider to the oil and gas industry, is considering an initial public offering for its Topaz Energy & Marine unit, according to people familiar with the matter. Renaissance, which has a market capitalization of about $379 million, could seek a valuation of about $1.5 billion for the Dubai-based business, the people said. Goldman Sachs Group Inc. and Morgan Stanley are advising on the share sale, which could take place next year in London, said the people, asking not to be identified as the details aren’t public.
• Glencore Plc will increase its share buyback program by as much as $1 billion, adding to a growing list of moves by the world’s biggest miners this year to return more money to investors. Glencore’s announcement comes less than a week after No. 2 miner Rio Tinto Group announced a $3.2 billion share buyback following an asset-sale spree. BHP Billiton Ltd. in August paid out a record dividend and pledged to hand shareholders most of the $11 billion reaped in sales of its U.S. shale assets.
• The only nuclear power plant under construction in the U.S. is awaiting a final vote from its fourth partner in favor of the $28 billion project led by Southern Co. Oglethorpe Power Corp., which holds a 30 percent stake in the Vogtle project, was granted an extension until 5 p.m. Tuesday to vote on the plant’s expansion, Southern’s Georgia Power utility said in a statement. Oglethorpe said in its own release earlier that it had granted conditional approval contingent on measures being enacted to control costs. The Vogtle nuclear plant has been beset with delays, and the forecast price tag is currently double the original estimate. Georgia Power disclosed in August that costs had increased by another $2.3 billion.
• Novartis AG plans to cut more than 2,000 jobs in Switzerland, or about 16 percent of its home-market workforce, within the next four years as new Chief Executive Officer Vas Narasimhan trims costs and narrows the drugmaker’s focus. About 1,450 jobs will be trimmed in manufacturing in response to adjustments to the production network, the Basel, Switzerland-based company said in a statement on Tuesday. Another 700 positions may be at risk by 2022 as part of a restructuring of business services, the drugmaker said. Separately, it said it may create about 450 Swiss positions.
• A Japanese court paved the way for the nation’s ninth nuclear reactor to restart, boosting Prime Minister Shinzo Abe’s push to bring dozens of plants back online following the 2011 Fukushima disaster. The Hiroshima High Court on Tuesday removed a temporary injunction against Shikoku Electric Power Co.’s Ikata No. 3 reactor, the company said in a statement. While the injunction ordered in December would end this month — meaning the utility could have restart the plant from Oct. 1 — the ruling is a symbolic victory for the government, which has often seen the courts stymie efforts to accelerate nuclear restarts.
• Louis Dreyfus Co., one of the world’s biggest agricultural trading houses, overhauled its management after its two top executives unexpectedly resigned. LDC veteran Ian McIntosh takes over as chief executive officer after Gonzalo Ramirez Martiarena quit following three years in the job, the storied family-company controlled by billionaire Margarita Louis-Dreyfus said in a statement. Chief Financial Officer Armand Lumens was replaced by Federico Cerisoli.
• Michael Kors to buy Gianni Versace in a deal valued about $2.12 billion and adopt the name Capri Holdings Limited, inspired by the luxury destination island. Deal not subject to financing condition; cash proceeds expected to be funded by combination of cash on hand, drawings under the company’s existing revolving credit facility, and committed underwritten bank term loans from advisors JPMorgan Chase Bank, N.A. and Barclays.The world’s biggest asset managers are lobbying for a last-minute reprieve from a European Union policy that could throw about 80 billion euros ($94 billion) of money funds into turmoil. BlackRock Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. are among giants hoping to persuade EU authorities to preserve a key feature that investors have come to expect: the fixed share price. Public statements by regulators so far suggest that new rules that start on Jan. 21 will eliminate the ability of such funds to maintain the stable value, eroding the main appeal of such products.
• Aegon NV’s shares rose the most in seven months after the insurer announced an unexpected capital boost of about $1 billion from combining two of its U.S. businesses. The merger of Aegon’s Arizona-based variable annuity captive with Transamerica Life Insurance Company will simplify the Dutch company’s legal structure, increase capital buffers and help it benefit from diversification, Chief Executive Officer Alex Wynaendts said in a statement Tuesday. The U.S. is Aegon’s biggest market, accounting for 44 percent of its revenue.
• Telecom Italia SpA’s board discussed a proposal by Chief Executive Officer Amos Genish to make an offer for Nextel Telecomunicacoes Ltda, a move that would help the phone company gain market share and spectrum in Brazil, according to people familiar with the matter. The talks followed a report by Bloomberg News last week that Telecom Italia was considering a bid for the closely-held company, Brazil’s fifth-largest wireless carrier. Telecom Italia acknowledged that its board met to discuss various scenarios on Monday, without being specific.
• Bryan Salesky has been entrusted with $1 billion by Ford Motor Co. and given a mission to bring the pioneering American automaker into the age of driving robots. All that money to figure out tomorrow from a company feeling more than a little insecure about its present comes with an unavoidable psychic weight. It becomes top of mind when Salesky looks down at the floor.

*All sources from Bloomberg unless otherwise specified