By MacNicol & Associates In Morning Notes
April 11th, 2018
Daily Market Commentary
- Alberta, the landlocked Canadian province that’s home to the oil sands, would be willing to buy out Kinder Morgan Inc.’s Trans Mountain pipeline if that’s the only way to salvage the critical export route. “We are considering a number of financial options to ensure that the Trans Mountain expansion is built, up to and including purchasing the pipeline outright,” Alberta Premier Rachel Notley said in a statement. Kinder threatened to abandon the $5.7 billion project, which would triple the pipeline’s capacity, unless obstacles to the plan are resolved by May 31. The warning came amid strident opposition and legal challenges from British Columbia, the Pacific coast province it traverses.
- Finding a condo to rent in Toronto is tough enough — paying for it has just gotten a lot harder. Average monthly rents in Canada’s biggest city surged 10.7 percent in the first quarter from a year earlier to C$2,206 ($1,751), according to Urbanation Inc. That’s the second-biggest increase since the firm started tracking the data in 2010, surpassed only by the 11.5 percent jump in the third quarter of last year. Part of the reason is simple supply and demand: Workers are flowing to Toronto for its booming tech and financial-services industries and competing for a scarcity of available units. At the same time, stricter mortgage-lending regulations and escalating condo prices are pushing potential buyers out of the purchase market and into rentals.
- Focusing early efforts on its home province is paying off for Quebec marijuana producer The Hydropothecary Corp. The Gatineau-based company on Wednesday said it signed a five-year supply agreement with Quebec’s alcohol distributor that could exceed 200 metric tons of cannabis products ahead of Canada’s expected pot legalization later this year. The agreement strengthens the producer’s grip on about a third of Quebec’s market and could be worth more than C$1 billion ($794 million), according to Chief Executive Officer Sebastien St. Louis.
- Stoxx 600 falls as much as 0.5%, trimming recent sharp gains, amid investor concerns over potential military strikes in Syria.
- U.S. equity index futures hit session low after Eurocontrol asked airlines to apply caution on flights to the eastern Mediterranean region because of possible air strikes in Syria over the next 72 hours. Stocks came under pressure on Wednesday amid a slew of catalysts, as investors prepared for the latest U.S. inflation reading while weighing ebbing trade concerns against potential American military action in Syria. The dollar drifted lower and Treasuries edged higher.
- Asian equities fluctuated as optimism that a trade war would be averted was overshadowed by concerns of a U.S. military strike on Syria. The MSCI Asia Pacific Index was little changed as of 4:09 p.m. in Hong Kong, erasing its earlier gain. A gauge of energy stocks rose to six-week high after Saudi Arabia was said to signal its ambition for $80 crude.
- Oil held gains above $65 a barrel as investors weigh easing trade tensions between the world’s two biggest economies against concerns over rising U.S. crude stockpiles. Futures in New York were little changed after climbing the most in eight months on Tuesday. President Donald Trump praised conciliatory remarks from Chinese counterpart Xi Jinping that signaled Beijing wants to defuse a trade dispute that had been roiling global markets. Investors now await a key government report on U.S. crude inventories after industry data was said to show a gain in stockpiles.
- Palladium climbed as tensions grew between the U.S. and Russia, a top producer of the metal. Gold rose for a fourth day.
- Aluminum is heading for its biggest winning streak since 1988 in the four days since the U.S. slapped sanctions on United Co. Rusal and as top exchanges said they’ll stop accepting metal from the Russian smelting giant. The metal advanced 3 percent on Wednesday to $2,266.50 a metric by 11 a.m. on the London Metal Exchange. That’s up 13 percent since Thursday, before the U.S. announced sanctions.
- U.K. manufacturing shrank for the first time in 11 months in February, led by output of machinery and equipment. The drop brings to an end an unprecedented run for manufacturers that helped to underpin the economy as a squeeze from rising prices took its toll on consumer spending.
- The world economy must avoid being sucked into a protectionist spiral that undermines the momentum of global growth, International Monetary Fund Managing Director Christine Lagarde said. The IMF remains optimistic about global growth prospects, Lagarde said Wednesday in a speech in Hong Kong ahead of next week’s annual spring meetings of the fund’s 189 member nations in Washington. The world economy is benefiting from surging investment, rebounding trade and favorable financial conditions, all of which are encouraging companies and households to step up spending, Lagarde said.
- Sinopharm Group Co. plunged by a record in Hong Kong, erasing $2.6 billion in value, after saying its profit fell about 30 percent in the first quarter. The Shanghai-based drugmaker closed down 17 percent, leading losses on the MSCI Asia Pacific Index. Pharmaceutical firms have been the top performers in Hong Kong and China this year as government efforts to promote the industry and expectations it would be shielded from a trade war made them investor favorites.
- Walmart Inc. looks likely to take the next round in the battle for India’s retail market over rival Amazon.com Inc. Flipkart Online Services Pvt, the country’s leading e-commerce company, is leaning toward selling a controlling stake to the Bentonville, Arkansas-based company, rather than Amazon, because of the greater certainty in such a deal, according to people familiar with the matter. Both U.S. companies are bidding for a controlling stake in Flipkart at a valuation of about $20 billion, said the people, asking not to be identified because the matter is private.
- Sprint Corp. and T-Mobile US Inc. have restarted talks about a potential deal, according to people familiar with the matter, five months after efforts to combine two of the biggest U.S. wireless providers fell apart. It’s not clear exactly what terms the companies are discussing, said the people, who asked not to be identified as the details aren’t public. Previous discussions to merge the carriers collapsed in November after months of negotiations as executives tussled over how control of the combined entity could be shared, people with knowledge of the talks said at the time.
- The deal OPEC struck in 2016 to clear a global glut by halting a significant chunk of oil production took almost a year of bargaining and brinkmanship. By year-end, the group may have lost the same amount of crude unintentionally. The Organization of Petroleum Exporting Countries is already cutting daily production by much more than its pledged 1.2 million barrels. Venezuela’s economic crisis is battering its oil industry and pushing output to the lowest level in decades, with a further decline likely. If U.S. President Donald Trump also reimposes sanctions on Iran, the cartel’s unplanned losses could swell to double the targeted cut.
- China is considering a relaxation of stock-index futures trading curbs that were introduced during the nation’s 2015 market crash, people familiar with the matter said. Officials have drafted a proposal that would allow institutional investors with so-called non-hedging accounts to open new positions in as many as 100contracts a day before they are deemed to be engaged in “abnormal trading,” said the people, who asked not to be named discussing private information. The current limit is 20 contracts.
- Volkswagen AG’s board abruptly ended the tenure of Chief Executive Officer Matthias Mueller, a caretaker who revived the carmaker after its worst crisis on record, turning instead to a leader who can implement deeper changes, people familiar with the matter said. Key stakeholders came to the conclusion they couldn’t afford to wait two years until Mueller’s contract expired to appoint a fresh CEO, as they deliberated an overhaul that will likely include a partial IPO of the heavy trucks division and how best to rapidly implement those changes, said the people, asking not to be identified discussing the private talks.
- Airbus SE and its suppliers have agreed to lift the target production rate for its A320neo model in response to strong demand for the narrow-body aircraft, according to people familiar with the matter. The European planemaker now aims to produce 63 single-aisle planes a month by the second quarter of 2019, up from a previous goal of 60, said the people, who asked not to be identified as the new rate hasn’t been made public. The company has previously said it could lift rates to as high as 70 a month, based on market demand, and was in talks with its suppliers.
- Alexion Pharmaceuticals Inc. agreed to buy Sweden’s Wilson Therapeutics AB for $790 million in cash, the latest in a rush of industry deals to capture new medicines for rare genetic diseases. A subsidiary of the New Haven, Connecticut-based biotechnology company is offering 232 Swedish kronor ($28) for each outstanding Wilson share, Alexion said in a statement on Wednesday. The price is 70 percent above where Wilson closed Tuesday.
- China is aiming to start a stock trading tie-up between Shanghai and London this year, according to a top official, creating a system that would give investors in the world’s most populous country direct access to shares listed in the U.K. The timing was announced by People’s Bank of China Governor Yi Gang at a panel discussion during the Boao Forum for Asia on Wednesday, unveiled as part of a broader package of policies that will further open up the nation’s financial sector. The program with London Stock Exchange Group Plc would be the third system to give foreigners access to the mainland equity market, the world’s second biggest by value. Alink between Shanghai and Hong Kong started in November 2014, and a connect between the former British colony and Shenzhen’s bourse opened in December 2016.
- If you own an exchange-traded note sold by Barclays Plc, go check your mail. The British bank is retiring or replacing roughly half of its U.S. offerings on Thursday, according to statements from the company. The plan affects 50 ETNs with about $1.2 billion in assets, data compiled by Bloomberg show. Yet, as of last week, assets stubbornly remained in the notes, meaning investors appear to be oblivious to a shake up that could strand them with hard-to-trade securities.
- Klepierre SA’s sweetened offer for Hammerson Plc left shareholders in the U.K. mall owner unimpressed and analysts questioning if a deal can be done. Hammerson shares fell as much as 2.2 percent Wednesday after the company rejected the French company’s 5 billion-pound ($7.2 billion) bid. Klepierre raised an initial offer by just 3 percent, suggesting it may be unwilling to stump up the cash needed to clinch a transaction that would be the biggest in the British real estate industry.
- Google is in talks to acquire Nokia Oyj’s airplane broadband business as the Alphabet Inc. unit seeks to tap into new services and reach more users by offering in-flight high-speed internet, people familiar with the matter said. Nokia’s technology could help Google offer a faster alternative to existing Wi-Fi on airplanes, said the people, who asked not to be identified because the deliberations are private. Talks are advanced and an agreement may be reached soon, the people said.
- Airbus SE’s aircraft-parts maker Premium Aerotec GmbH is attracting takeover interest from private equity firms, according to people with knowledge of the situation. CVC Capital Partners, Onex Corp. and KKR & Co. are among the firms that have expressed interest in all or parts of the Augsburg, Germany-based business, said the people, asking not to be named as the details aren’t public. The potential suitors’ deliberations are at an early stage and may not lead to bids, they said. A formal sale process hasn’t started, they said.
- IHH Healthcare Bhd. is preparing to formally approach India’s Fortis Healthcare Ltd. with an offer for the hospital operator that will put it in competition with a TPG-backed firm, people with knowledge of the matter said. IHH, Southeast Asia’s largest hospital operator, aims to send a letter to the Fortis board within the next couple of weeks about its plans to bid for the Indian company, according to the people. The Kuala Lumpur-based company is contemplating a cash offer for Fortis, which has a market value of about $1.2 billion, the people said, asking not to be identified because the information is private.
- Buyout firm PAG Asia Capital is teaming up with Key Safety Systems Inc. in the acquisition of Takata Corp., the bankrupt Japanese airbag maker at the center of the auto industry’s worst recall, people familiar with the deal said. The Hong Kong-based fund will bolster Key Safety’s efforts to fund the purchase by joining as an investor in the buyer consortium, according to the people, who declined to be identified before a public announcement. PAG was among private-equity firms including KKR & Co. and Bain Capital to have evaluated bids for Takata almost two years ago.
- Temasek Holdings Pte is studying potential investments in Swissport Group and Gategroup Holding AG, both owned by HNA Group Co., as it considers deals with the indebted Chinese conglomerate, people with knowledge of the matter said. Temasek, which inked a partnership with the Chinese group this week, is exploring buying stakes in a number of HNA affiliates that are complementary to its portfolio companies, the people said. It may reach agreements on some of the potential deals as soon as the third quarter depending on the pace of negotiations, one of the people said, asking not to be identified because the information is private.
*All sources from Bloomberg unless otherwise specified