Market Outlook – May 7, 2018

Crude Oil Prices Jump to Highest Level

 

On Monday, key crude oil prices rose by 1% to their highest levels since late-2014. The worsening economic crisis in major oil exporter Venezuela and the United States’ possible move to re-impose sanctions against Iran pushed the prices higher.

U.S. West Texas Intermediate (WTI) crude futures rose 70 cents or 1% to $70.42 per barrel. It was the first time since November 2014 that WTI had climbed above $70 per barrel. Brent crude oil futures were also up at $75.57 per barrel, up 0.9% from the last close. In earlier trading the price touched their highest since November 2014 at $75.89 a barrel.

U.S. Maintains Hard Line Stance on NAFTA Talks

 

The update on the NAFTA trade deal enters a make-or-deal situation on Monday. All three ministers from Canada, Mexico, and the United States are seeking to resolve an impasse in key areas ahead of the elections in Mexico and the U.S.

The negotiations will become complicated if no deal is reached before then. However, the U.S. is maintaining a hard line stance particularly on the rules governing cars to be built in the NAFTA region. Washington is demanding a sunset clause that could inevitably kill the trade deal after five years.

The head of Mexico’s negotiating team, Moises Kalach, sees the next two or three weeks as their window of opportunity. But because of the gridlock on the most critical issues, sources are saying a sense of uncertainty and pessimism is creeping in.

Nestle Wants Global Coffee Alliance with Starbucks

 

U.S. coffee chain Starbucks Inc. (SBUX) has agreed to the Swiss-based food giant Nestle to pay them $7.15 billion in cash for the rights to sell their products around the world.  This global alliance announced on Monday aims to reinvigorate their coffee empires.

Starbucks Chief Executive Kevin Johnson said, “This global coffee alliance will bring the Starbucks experience to the homes of millions more around the world through the reach and reputation of Nestle.” By joining forces, Nestle and Starbucks are poised to compete in a highly fragmented consumer drinks category.

The deal that could be worth $2 billion in sales will fortify Nestle’s position as the world’s biggest coffee company. Meanwhile, the Seattle-based Starbucks said it will use proceeds to accelerate share buybacks.

Starbucks is looking to return approximately $20 billion in cash to shareholders in the form of share buybacks and dividends through fiscal year 2020.

ZTE Corp. Requests Suspension of U.S. Ban

 

The filing of China’s ZTE Corp. to the Shenzhen stock exchange on Sunday revealed that the company has submitted an application to the U.S. Commerce Department’s Bureau of Industry and Security (BIS) for the suspension of a business ban.

No details about the application were given although ZTE provided the BIS additional material to justify their request to suspend the seven-year sales ban. The Chinese firm is fighting for the survival of its smartphone business because they’re heavily reliant on imports of U.S. chips.

Nokia Expanding Beyond Telecoms

 

Nokia, the multinational telecommunications firm from Finland, said on Monday it has acquired U.S. software maker SpaceTime Insight. Industrial customers use the services of the latter to manage millions of devices and assets across their networks.

This latest acquisition of the Finnish equipment supplier shows its desire to expand beyond telecoms. The acquisition of SpaceTime is strategic acquisition because it brings more than two dozen major customers.

Some of their top clients are FedEx (FDX), U.S. electric utilities Entergy (ETR) and NextEra Energy (NEE) plus Union Pacific which is the No. 2 U.S. rail operator. Singapore Power is also one of Nokia’s major customers.

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