September 5th, 2018

Daily Market Commentary

Canadian Headlines

• Talks to revamp the North American Free Trade Agreement are set to resume as U.S. and Canadian negotiators push to strike a deal amid President Donald Trump’s threats to walk away. Canadian Foreign Affairs Minister Chrystia Freeland is scheduled to meet U.S. Trade Representative Robert Lighthizer in Washington Wednesday after a series of back-to-back meetings last week failed to yield an agreement. They were rushing to bridge their differences by the end of August so Canada could join a preliminary pact the U.S. had struck with Mexico just days earlier.
• Canopy Growth Corp’s game-changing deal with the maker of Corona beer has more than doubled the pot producer’s stock price, but its chief executive officer says the global medical market is the real justification for its sky-high valuation. “If we figure out in Canada how to help people who want to sleep or how to help old people feel better and move around, if we become the first company that does C$1 billion in revenue in the cannabis space, I don’t really think the valuation has run away from itself,” Bruce Linton, 52, said in an interview at Bloomberg’s Toronto office.
• The Bank of Canada is expected to hold borrowing costs steady Wednesday in what will probably be just a pause on its hiking path. After four increases since mid-2017, including at their last meeting in July, investors and economists anticipate policy makers will take a breather in a rate decision at 10 a.m. New York time and leave the benchmark overnight interest rate at 1.5 percent, before raising again as early as October.
• Zijin Mining Group Co., a Chinese gold and base metals producer, agreed to buy Nevsun Resources Ltd. for $1.41 billion in cash, just days after winning a tender for a Serbian copper miner. The Fujian-based company will acquire all of the issued and outstanding shares of Nevsun for C$6 per share in cash, they said. The cash consideration represents a premium of 57 percent over Nevsun’s closing price of C$3.82 on May 7, the day Lundin Mining Corp. first announced its intention to buy Nevsun.
• Canadian banks are scoring back-to-back record earnings, beating big U.S. lenders on profitability, productivity and dividend yields. They still can’t outperform U.S. banks on the stock market. Toronto-Dominion Bank, Royal Bank of Canada and the nation’s other six large lenders collectively boosted profit 10 percent to a record C$11.7 billion ($8.9 billion) in the fiscal third quarter. Still, that’s no match for a U.S. economy seen having more runway than Canada’s, thanks in part to Donald Trump’s tax cuts.

 

 

World Headlines

• European stocks extended losses, following drops in Asian markets, as investors fear a wider contagion from emerging markets pressures. The Stoxx Europe 600 Index fell 0.4 percent, adding to the 0.7 percent drop on Tuesday. All of the sub-sectors fell, lead by basic resources and autos shares. Bayer AG slumped 3 percent after saying earnings will be lower than it had projected earlier this year.
• U.S. stock-trading volume that climbed Tuesday is likely to remain elevated in a holiday-shortened week. Jobs data, a possible announcement of $200 billion in tariffs on Chinese products, Facebook Inc. and Twitter Inc.’s testimony before Congress, and Syria talks are all scheduled. Mounting uncertainty over trade and an array of quarterly earnings reports did little to prevent volumes from dropping in August.
• Asian equities are poised for the longest losing streak in almost three months as investor concerns over emerging markets intensify. The MSCI Asia Pacific Index fell for a fifth day, sliding 1.5 percent to 161.52 at 4:15 p.m. in Hong Kong, with its members losing about $258 billion of market value. Ten industrial gauges in the benchmark dropped.
• Oil fell below $69 a barrel on concern over higher inventories at a key storage hub in the U.S., while the threat posed by a storm heading toward offshore oil fields in the Gulf of Mexico eased. Futures in New York slipped as much as 1.6 percent. Government data due Thursday are forecast to show that stockpiles at Cushing in Oklahoma have increased for a fourth straight week. Meanwhile, the impact of Tropical Storm Gordon on U.S. output has been smaller than expected and is forecast to weaken. A rally in the greenback has also weakened the appeal of dollar-based commodities.
• Gold trades slightly higher, after dropping the most in a week Tuesday as the dollar strengthened amid an unexpected surge in U.S. manufacturing. Investors also eye trade tensions and turmoil in emerging markets.
• India’s rupee owes its tag of Asia’s worst-performing currency this year to the selloff sweeping emerging markets. There’s more pain in store from beyond its borders. While foreign currency debt has zoomed, various external vulnerability indicators paint a rather mixed picture, according to the Reserve Bank of India’s annual report. Indeed, data due as early as next week will probably show the nation’s current-account deficit widened in the June quarter to 2.6 percent of gross domestic product, the highest in 4 1/2 years.
• Tropical Storm Gordon was rapidly weakening while moving inland after making landfall just west of the Alabama-Mississippi border on Tuesday night in the U.S. Gordon, with top winds of 40 miles (65 kilometers) per hour, was swirling toward the northwest, and the center of the storm is expected to proceed across the lower Mississippi Valley through Wednesday, the U.S. National Hurricane Center said in a bulletin at 5 a.m. New York time. Winds earlier reached 70 miles per hour.
• Deputy Premier Matteo Salvini headed into budget talks with his Italian government colleagues on Wednesday striking a more cautious tone over spending plans that have roiled markets over the past week. Salvini has been dialing back his rhetoric since his weekend threat to push the deficit to its European Union limit of 3 percent of GDP. The government is working on a three-year time frame and won’t do everything immediately, he told financial daily Il Sole 24 Ore. He’s even prepared to delay the League’s signature promise of a flat tax, newspaper Il Messaggero reported.
• European Union officials are exploring how to unlock a wider Brexit deal by making the so-called Irish border backstop more palatable to the U.K., according to a person familiar with the deliberations. In February, the EU laid out a detailed plan for avoiding a hard border on the island of Ireland, a proposal that would effectively keep Northern Ireland in the bloc’s customs union and parts of the single market as a last resort. But that approach would amount to erecting a customs frontier between Northern Ireland and mainland Britain, which U.K. Prime Minister Theresa May says is unacceptable.
• Regions around Osaka, Japan’s second biggest population center, struggled to recover from damage left by Typhoon Jebi, which left 10 people dead, hundreds of thousands of buildings without power and the area’s main airport closed. Kansai International Airport, a key transport and cargo hub that lies on an artificial island in Osaka Bay almost directly in the typhoon’s path, remained shut on Wednesday. Jebi, the strongest tropical cyclone to come ashore in 25 years, flooded its runways, and a tanker smashed into the road and rail bridge connecting the airport to the mainland.
• The market’s biggest cryptocurrencies dropped sharply on Wednesday after trading mostly little changed earlier. Bitcoin, the biggest digital asset, erased gains and fell more than 3 percent in about 10 minutes. Litecoin, Ethereum and Ripple followed suit.
• ChemChina’s chairman is studying potential asset sales as the state-owned company moves ahead with preparations for a long-mooted megamerger with Sinochem Group, people with knowledge of the matter said. Frank Ning, who leads both companies, has started reviewing the businesses of ChemChina and Sinochem to identify areas of overlap and potential synergies, according to the people. Ning is considering pursuing divestitures or initial public offerings of some units, the people said, asking not to be identified because the information is private.
• China is seeking to expand ownership of its power trading centers, requiring non-grid enterprises to take up larger stakes, as part of wider sector reforms aimed at making electricity sales more open and transparent. Stakes held by non-grid companies should be no less than 20 percent in the power exchanges of Beijing, the southern manufacturing hub of Guangzhou and other provincial platforms, the National Development & Reform Commission said in a statement on Tuesday. Ownership of about 50 percent is encouraged, and the shareholding overhaul should be completed by year-end, according to the top economic planner.
• Alphabet Inc.’s Google posted what it called “testimony” for a congressional hearing on social media companies’ efforts to thwart election meddling in advance of November’s midterm races — only it doesn’t appear anyone will be there to deliver it. The Senate Intelligence Committee has said it rejected Google Chief Legal Officer Kent Walker as a witness because he wasn’t high-level enough to testify at a hearing Wednesday that will include Twitter Inc. Chief Executive Officer Jack Dorsey and Facebook Inc. Chief Operating Officer Sheryl Sandberg.
• Sweden’s elections this weekend could spell more pain for an already floundering krona. A significant increase in support for the Sweden Democrats, whose anti-European Union rhetoric echoes similar populist movements across the continent, would be the worst election outcome for the krona, according to a Bloomberg survey of 10 strategists. The most pessimistic outlook is for the krona to stumble to 10.85 to the euro if the nationalists manage to become the largest party. That would be the weakest level since July 2009.
• The U.K. charged two Russian nationals over the attempted murder of a former spy and the use of a Novichok nerve agent on British soil, a move that will further sour ties with the Kremlin. Police named Alexander Petrov and Ruslan Boshirov as the aliases of the two key suspects in the attack on Sergei Skripal and his daughter in the English town of Salisbury in March. British and European arrest warrants have been issued for the pair, though the government will not seek extradition of the pair as Russia’s constitution forbids it.

*All sources from Bloomberg unless otherwise specified