September 28th, 2018

Daily Market Commentary

Canadian Headlines

  • Canadian stocks gained, following U.S. peers higher, getting a boost from a rally in energy and technology shares. The loonie weakened for a second day as the U.S. dollar strengthened against major peers after the latest Federal Reserve rate hike. The S&P/TSX Composite Index rose 0.2 percent, with energy stocks leading gains amid a rally in oil prices and hopes for a Canadian LNG project. Health stocks extended losses as pot shares fell on proposed regulations in Ontario to limit cannabis producers to one location.
  • Bank of Canada Governor Stephen Poloz said he continues to believe gradually raising interest rates is the right approach, even with investors virtually certain he’ll hike again next month. In a speech Thursday in Moncton, New Brunswick, Poloz reiterated that the central bank’s assessment of the outlook is uncertain and it’s best not to operate monetary policy “mechanically.” At the same time, the central banker said rates do need to rise because the economy is doing well and inflationary pressures are on target.
  • Two of Royal Dutch Shell Plc’s Asian partners in a liquefied natural gas venture in western Canada approved their share of the investment, pushing the multibillion-dollar development one step closer to a final approval. The board of PetroChina Co., the nation’s largest oil and gas company, approved its $3.46 billion share of the LNG Canada project, the company said in a filing to the Hong Kong stock exchange Friday. Korea Gas Corp. made a similar announcement in Seoul about its stake.
  • Canadian tech darling Shopify Inc. is revving up its growth engine in Toronto. 

The Ottawa-based company is investing as much as C$500 million ($384 million) in Canada’s biggest city to lease 254,000 square feet (23,600 square meters) from Allied Properties Real Estate Investment Trust and RioCan Real Estate Investment Trust at the Well, one of Toronto’s biggest office developments, according to a statement Friday. Bloomberg News first reported in June that Shopify was in the final stages of negotiations on the lease, which is for 15 years.

World Headlines

  • Stocks in Europe dropped along with U.S. futures at the end of a volatile quarter as political concerns and disappointing price data sparked a flight to the safety of core European bonds and Treasuries. Italian assets took a beating after the country’s populist leaders gained the upper hand in a battle over spending. The Stoxx Europe 600 Index retreated, led by Italian shares as the country’s benchmark headed for the biggest drop in more than two years.
  • U.S. equity-index futures also fell as Treasuries and the dollar gained. The yen’s slide to the weakest level this year helped stoke Japanese stocks as Asian equities advanced from Sydney to Shanghai. Japanese yields rose after the Bank of Japan paved the way to reduce purchases of super-long bonds. Oil remained on course for the longest run of weekly gains in four months as energy giants to Wall Street banks predicted the return of $100 crude on an impending supply crunch.
  • Asian equities rose, led by gains in Japan and China, even as a regional benchmark was set to post a third consecutive quarterly decline amid ongoing trade concerns between the U.S. and China. The MSCI Asia Pacific Index added 0.3 percent as of 4:47 p.m. in Hong Kong, led by telecom and energy stocks. Japan’s benchmark Topix closed 1 percent higher after the yen weakened to the lowest level against the dollar since December 2017, while Nikkei 225 Stock Average ended just short of a 27-year high. Hong Kong’s Hang Seng Index advanced 0.3 percent as financial stocks including AIA Group Ltd. and HSBC Holdings Plc led gains. China’s Shanghai Composite Index closed 1.1 percent higher.
  • Oil’s on course for the longest run of weekly gains in four months, as energy giants to major trading houses warned that a supply crunch could propel prices to $100 a barrel. Futures in New York were set for a 1.8 percent advance this week, poised for a third weekly increase. Total SA Chief Executive Officer Patrick Pouyanne said a supply loss in Iran and declining output in Venezuela may help push prices back to levels last seen in 2014. Meanwhile, the U.S. Energy Department dismissed speculation it will release emergency crude reserves to temper prices.
  • Gold is heading for a 6th straight month of losses as Federal Reserve continues to raise interest rates, and Chairman Jerome Powell indicates the path is clear for further increases well into 2019.
  • Leading indicators for China’s economy show growth continued slowing in September amid the escalating trade war with the U.S. The data suggest the dispute was weighing on economic activity even before the latest round of tariffs, which took effect this week. That’s the takeaway from a Bloomberg Economics gauge aggregating the earliest-available indicators on business conditions and market sentiment.
  • Tesla plummeted 11 percent in pre-market trading Friday after the Securities and Exchange Commission accused its Chief Executive Officer Elon Musk of misleading investors. The share drop may bring the electric vehicle maker’s market valuation below that of General Motors Co. Should Tesla shares reflect the plunge into regular trading Friday, it would bring the company’s market capitalization to about $46.7 billion, compared to $52.5 billion as of Thursday’s close. GM’s market value stood at $47.5 billion as of Thursday, while that of Ford Motor Co. was $36.8 billion.
  • Chinese electronics giant TCL Corp. is weighing a bid for ASM International NV’s remaining stake in its listed Asian affiliate, as the Dutch semiconductor-equipment maker faces pressure from activist investors, people familiar with the matter said. TCL has been working with an adviser to explore making an offer for the 25 percent stake in Hong Kong-listed ASM Pacific Technology Ltd., the people said, asking not to be identified because the information is private. The holding is worth about $1 billion based on Friday’s closing price, data compiled by Bloomberg show.
  • China’s private funds industry is growing at the slowest pace in nearly three years, as shaky markets and a government crackdown on risk take a toll that’s expected to get worse. Assets under management in the sector rose by 10 billion yuan ($1.5 billion) last month to 12.8 trillion yuan, according to data from the Asset Management Association of China. New issuance by funds that trade securities fell to the lowest level in more than a decade, according to The slowdown comes after the industry more than tripled in size over three years.
  • Chancellor Angela Merkel is letting Turkey’s leader in from the cold, a year after he accused Germans of using Nazi methods. Hemmed in by U.S. pressure and an economic crisis, President Recep Tayyip Erdogan is seeking to repair relations with the leader he views as the key to the European Union. Merkel, who held out the prospect of increased economic cooperation, receives him on Friday for talks and a news conference in Berlin, followed by the honor of a state dinner hosted by Germany’s president.
  • Italian assets tumbled after the government set next year’s budget deficit target wider than the market envisaged, with the moves starting to ripple through to global markets. Stocks fell the most in two years, with trading in banks stocks being temporarily halted, after Deputy Premiers Matteo Salvini and Luigi Di Maio announced a 2.4 percent projection in a joint statement late on Thursday. Benchmark 10-year yields climbed the most since May, with the slide sparking a flight of capital into haven assets such as German bunds and the Swiss franc.
  • Investors reacted cautiously to news that Freeport-McMoRan Inc. and Indonesia signed a binding agreement for the U.S. miner to hand over control of the giant Grasberg mine after more than a year of difficult negotiations. The world’s largest publicly traded copper producer and Indonesia said they signed a deal on Thursday for Freeport to cede majority ownership of the copper and gold mine to a state-owned firm. The accord will allow Indonesia to issue a special mining license for Freeport, while partner Rio Tinto Group will cash out its economic interest for $3.5 billion. Freeport shares closed down 0.9 percent after dropping as much as 3.5 percent.
  • China is preparing to issue a sovereign dollar-denominated bond next month, its first in almost a year, according to people familiar with the matter. The Ministry of Finance has hired 12 banks to manage the sale and may price in the week of Oct. 8, said the people who aren’t authorized to speak publicly and asked not to be identified. It plans to issue a five-year and a 10-year tranche, and is also considering a 30-year note, they said. A call to the MOF’s press office went unanswered.
  • Senate Republicans are pushing to confirm Supreme Court nominee Brett Kavanaugh early next week in a show of partisan power after his angry denial of sexual assault allegations in a hearing that devolved into a shouting match with Democrats. The Senate Judiciary Committee plans to vote Friday morning, and Majority Leader Mitch McConnell said the full Senate will vote “in the coming days” — although some key Republicans haven’t said whether they will provide the support needed to confirm President Donald Trump’s second high court nominee.
  • Knorr-Bremse AG set a price range for its planned initial public offering that will value the German manufacturer, one of the world’s largest makers of truck and train brakes, at as much as 14 billion euros ($16.3 billion). Majority billionaire owner Heinz Hermann Thiele and his family will sell up to a 30 percent stake at a price of 72 euros to 87 euros a share, the Munich-based company said Friday in a statement. Trading is planned to start on Oct. 12 in Frankfurt.
  • KKR & Co. and Blackstone Group LP are among suitors that have expressed interest in acquiring a stake in Shriram Group, the Indian finance conglomerate backed by billionaire Ajay Piramal, people with knowledge of the matter said. The two private equity firms have each held preliminary talks in recent months about buying stakes in Chennai-based Shriram Group owned by Piramal Enterprises Ltd., TPG and an employee trust, according to the people. An investment could total about $3 billion, the people said, asking not to be identified because the information is private.
  • SoftBank Group Corp., KKR & Co. and General Atlantic plan to make a giant investment in fast-rising Chinese internet player Bytedance, according to people familiar with the matter, a deal that could make it the world’s biggest startup. The latest round may value Beijing Bytedance Technology Co., parent of news aggregator Toutiao and video sensation Tik Tok, at around $75 billion before investment, said the people, who requested not to be named because the matter is private. SoftBank is initially targeting an investment of about $1.5 billion though it’s unclear how big its final check will be, the people said. While KKR and General Atlantic have led discussions, the people added, SoftBank could play a much bigger role if its investment approaches the outsized amounts it’s known for.
  • Fubon Financial Holding Co. is preparing to gauge buyer interest in its Hong Kong banking unit, which could be valued at $2 billion to $3 billion in a sale, according to people with knowledge of the matter. The Taipei-based firm is working with UBS Group AG on the potential divestment of Fubon Bank (Hong Kong) Ltd., the people said, asking not to be identified because the information is private. A formal auction process could start as soon as the next few weeks, said the people.
  • Meituan Dianping’s losses more than doubled in the first half after the on-demand services app backed by Tencent Holdings Ltd. spent furiously to drive deeper into businesses from bike rentals to online travel. The Chinese company disclosed its first results since completing Hong Kong’s second-largest tech initial public offering in 2018. It posted a whopping 28.8 billion yuan ($4.2 billion) net loss for the first six months, swelled mostly by changes in the value of preferred shares. Excluding that impact, its operating loss still tripled to 3.9 billion yuan. Meituan’s shares slid more than 2 percent Friday and remain below their IPO price.
  • The American Bar Association called on the U.S. Senate to delay a vote on Brett Kavanaugh’s Supreme Court nomination until “after an appropriate background check into the allegations” made by Christine Blasey Ford regarding sexual assault is completed by the FBI. “We make this request because of the ABA’s respect for the rule of law and due process under law,” ABA President Robert Carlson said in a letter to Judiciary Committee Chairman Chuck Grassley, an Iowa Republican, and the panel’s top Democrat, Dianne Feinstein of California. “The basic principles that underscore the Senate’s constitutional duty of advice and consent on federal judicial nominees require nothing less than a careful examination of the accusations and facts by the FBI.”

*All sources from Bloomberg unless otherwise specified