By MacNicol & Associates In Morning Notes
April 12th, 2018
Daily Market Commentary
- Canadian stocks slipped after spending most of the day in positive territory, as declines in financials offset gains in commodity producers. The S&P/TSX Composite Index fell less than 0.1 percent to 15,257.90, its first decline of the week. Financials fell 0.8 percent, tracking sector losses in the U.S., amid growing tensions in the Middle East. Bank of Montreal slid 1.4 percent and Royal Bank of Canada lost 1 percent.
- Canada will consider using all of its tools for seeing the Trans Mountain pipeline expansion through to completion, Finance Minister Bill Morneau said, indicating the federal government wouldn’t rule out taking a stake in the project. The government has spoken with Kinder Morgan Inc. since it said on Sunday that it’s halting most work on the pipeline amid opposition from British Columbia, Morneau said. The government isn’t ruling out any option — legal, regulatory or financial — because the project is vital to attracting investment to Canada, he told reporters in Toronto in a response to questions about a potential stake purchase.
- French drugmaker Sanofi will build a 350 million euro ($433 million) manufacturing facility in Toronto to expand vaccine production. The new plant will allow Sanofi’s vaccines unit to meet growing demand for five-component acellular pertussis antigen, the Paris-based company said Thursday in a statement. When completed in 2021, the new building will also be equipped to produce antigens used in the diphtheria and tetanus vaccines, the company said.
- Canada’s export financing agency is giving a vote of confidence to the nation’s economy even in the face of growing trade tensions, raising its projections for sales abroad in its semi-annual forecast report. Export Development Canada predicts the export of goods will grow 6 percent this year, up from a prediction of 4 percent growth six months ago, according to a report released in Ottawa on Thursday. That will keep the pace of growth close to the 2017 gain of 7 percent.
- European stocks rose with U.S. equity futures on Thursday after President Donald Trump hinted that American military action in Syria may not be imminent, easing some investor fears.
- The S&P 500 Index retreated overnight amid provocative comments by President Donald Trump about Russia and his warning of preparations to attack Syria. Fed officials leaned toward a slightly faster pace of tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, minutes showed.
- Asian equities fell for the first time in four days amid caution over the U.S. Federal Reserve’s policy outlook and tensions in the Middle East. The MSCI Asia Pacific Index fell 0.4 percent to 173.84 as of 4:19 p.m. in Hong Kong. A gauge of industrial stocks lead the decline, while energy companies extended gains with rising crude oil.
- Oil steadied after jumping to the highest in more than three years on concern that escalating tensions in the Middle East could lead to conflict and disrupted supplies. Futures in New York remained above $66 a barrel, having jumped 2 percent on Wednesday to the highest since December 2014. Saudi Arabia, the biggest oil exporter, intercepted a ballistic missile fired by pro-Iranian Yemeni rebels over its capital just hours after President Donald Trump warned America is preparing to strike Syria. Meanwhile, investors largely shrugged off a U.S. government report showing a surprise gain in nationwide crude inventories.
- Gold gave up some of this week’s gains after the dollar rose first day in five, and as investors digest rising geopolitical, trade tensions. Palladium drops most since April 5, leading declines in precious metals.
- IAG SA said it’s considering acquiring Norwegian Air Shuttle ASA in a potential deal that would help the owner of British Airways boost its market share amid intensifying competition from low-cost carriers. IAG acquired a 4.61 percent stake in the airline and said it’s considering a takeover offer after Bloomberg News first reported that the British company was weighing a bid. Shares of Norwegian Air soared by a record26 percent on Thursday. A potential acquisition could value the Norwegian company, which has a market value of more than $1 billion, at about $3 billion including debt, people with knowledge of the matter said, asking not to be identified because the deliberations are confidential.
- Chinese bonds haven’t done this well relative to equities since the stock market bubble burst in 2015, and it looks like the outperformance will continue. Signs of slowing economic growth and uncertainty over how a trade spat with the U.S. will pan out are buoying demand for debt and weighing on stocks, while there’s plenty of liquidity and the deleveraging that undermined the bond market last year has faded. That’s driven the yield on 10-year government bonds down 19 basis points this year, as the Shanghai Composite Index slid 3.8 percent.
- OPEC said its oil output fell to the lowest in a year last month amid reduced supplies from Venezuela and Saudi Arabia, suggesting global markets may tighten sharply later this year. Most of a global crude glut has been eliminated following 15 months of output curbs by the Organization of Petroleum Exporting Countries and its partners, according to a monthly OPEC report. With production sinking in Venezuela amid an economic crisis, worldwide inventories are on course to decline significantly in the second half of 2018, the report showed.
- Avast Software BV, the private equity-owned maker of anti-virus software, intends to float in London in early May, aiming to raise about $200 million alongside $800 million in secondary shares as it seeks to reduce its debt pile and allow investors to exit. The deal will be one of the biggest tech-focused IPOs in London. Alfa Financial Software Holdings Plc raised 278-million pound IPO in August 2017 — then the U.K.’s biggest tech offering in two years since rival cyber-security software developer Sophos Group Plc listed in 2015, at a valuation of about 1 billion pounds, according to data compiled by Bloomberg.
- Walt Disney Co. will be forced to make a mandatory takeover offer for Sky Plc provided its $52.4 billion purchase of most of 21st Century Fox Inc. is completed and Fox doesn’t buy the European pay-TV company first, the U.K. Takeover Panel said on Thursday. Disney would have to bid 10.75 pounds ($15.22) per Sky share if it succeeds in acquiring Fox’s existing 39 percent stake in the British broadcaster through the broader deal, according to a statement from the panel. That’s the same price offered by Fox to Sky shareholders in 2016 for the stake it doesn’t already hold.
- A trade war would leave the U.S. Federal Reserve having to decide between battling weaker economic growth or rising prices. Which one it focuses on already looks pretty clear. President Donald Trump’s administration has proposed tariffs on imported steel and aluminum, from which a number of U.S. allies would be exempt, and has threatened to slap additional measures on as much as $150 billion of Chinese goods. Higher and broader tariffs would raise the prices of those imports, potentially fanning U.S. inflation, while reducing economic activity by sapping confidence and tightening financial conditions.
- IHH Healthcare Bhd. has proposed a potential bid of as much as $1.3 billion for Fortis Healthcare Ltd. that tops an offer from a TPG-backed consortium, according to people with knowledge of the matter, opening a possible takeover battle for India’s second-largest hospital chain. Asia’s largest hospital operator sent a letter to the Fortis board Wednesday saying it may be willing to pay as much as 160 rupees per share to acquire control of the Indian company, the people said, asking not to be identified because the information is private. It has asked the Fortis board for some time to update its due diligence before making a formal bid, the people said.
- Even as BlackRock Inc.’s growth appears unstoppable, there are signs the firm isn’t invincible. The world’s largest money manager saw net flows for its global iShares exchange-traded funds decline 46 percent in the first quarter to $34.6 billion from a year earlier. Even with the fall in flows, BlackRock beat quarterly earnings estimates and saw total assets under management rise to $6.3 trillion.
- For 14 years, Mark Zuckerberg was free to use any means he could imagine to build his social network into an internet and advertising colossus with tens of billions of dollars in revenue. Now Congress is waking up to what that freedom meant for Facebook Inc. users. The chief executive officer’s first congressional testimony — roughly 10 hours answering to U.S. Senate and House lawmakers over the past two days — kick-started a new era of government scrutiny of Facebook, whose swift emergence outpaced any regulations on the books at its founding.
- Tencent Holdings Ltd.’s having about as bad a month as Facebook Inc. — on financial markets, at least. Analysts are betting it’ll pull through. The Asian social media colossus has bled more than $50 billion of value since warning on March 21 of dwindling margins. Shortly after, it got caught up in a global selloff of internet stalwarts as investors fretted about the risk of regulatory tightening in the wake of Facebook’sCambridge Analytica controversy. Then it came under pressure when the prospect of a trade war with the U.S. intensified. In the middle of all that, largest shareholder Naspers Ltd. declared it was unloading a $9.8 billion stake.
- Assets under management at private banks in Asia surged 29 percent last year to top $2 trillion for the first time, driven by strong flows from China and buoyant financial markets, according to Asian Private Banker. “Asia’s private banks benefited from a sustained market rally and robust client activity to deliver strong AUM growth and, in many cases, post record revenues,” said Sebastian Enberg, editor of the Hong Kong-based publication. It was the fastest annual growth in wealth assets in the region since Asian Private Banker started collecting data in 2012.
- Lloyds Banking Group Plc plans to modernize parts of its trading room in London by increasing the use of machine-trading to meet the demands of clients, according to people with the knowledge of the project. The algorithms will mainly be used for the currency desks as clients are increasingly asking to operate through the technology in line with rivals, said the people who asked not to be identified because the matter is private. The demand is coming mainly from largest corporate and financial institutions clients, which uses the services through the bank in different currencies, the people said. A spokeswoman at the bank declined to comment.
- Sergio Marchionne spent the last 14 years transforming Fiat Chrysler Automobiles NV through a series of spinoffs and mergers from a near-bankrupt Italian conglomerate into the best-performing U.S. automaker. His pending exit may open the door for the next big deal. Marchionne, 65, is set to start his final year as chief executive officer after Fiat Chrysler’s annual shareholders meeting on Friday in Amsterdam. His plans to hand over to one of his aides has long been flagged, but what happens beyond that is a mystery. The carmaker, referred to as FCA by investors, isn’t going to provide much insight before presenting its plans for the post-Marchionne era at a June investor meeting, stoking speculation.
- Banks are putting the brakes on Britain’s consumer credit boom, according to the Bank of England. The availability of unsecured credit to households was reported to have decreased “significantly” in the first quarter as lenders tightened criteria for granting both credit card and other unsecured loans, the BOE said in a report published Thursday. Default rates increased and the tougher lending criteria was partly put down to a changing risk appetite among lenders, which have been increasing unsecured credit by about 10 percent a year.
- Mercedes-Benz is developing a battery-powered sedan about the size of its $90,000 flagship S-Class, challenging Tesla Inc.’s Model S for high-end electric-car buyers. The new full-size sedan, dubbed EQ S, will be part of the Daimler AG unit’s push to introduce 10 all-electric vehicles by 2022, Chief Executive OfficerDieter Zetsche said Wednesday during the presentation of the revamped Mercedes A-Class hatchback in Split, Croatia.
- Hong Kong’s dollar fell to the weak end of its permitted band for the first time since the range was imposed in 2005, a warning sign for a city where easy money has stoked a property boom and underpinned the stock market’s record rally. The spot rate reached HK$7.85 per dollar on Thursday, after threatening to do so since late March. The Hong Kong Monetary Authority, which is obligated to defend the band, said in a statement that it stands ready to fulfill any requests from banks to support the currency.
*All sources from Bloomberg unless otherwise specified