By MacNicol & Associates In Morning Notes
April 16th, 2018
Daily Market Commentary
- Prime Minister Justin Trudeau plans to start talks with Kinder Morgan Inc. to backstop the Trans Mountain pipeline after failing to end a spat between Canadian provinces that put the vital project at risk. “We are going to get the pipeline built. It is a project in the national interest,” Trudeau told reporters Sunday after meeting with premiers of British Columbia and Alberta. He asked Finance Minister Bill Morneau to launch a “formal financial discussion” with the company to hedge risk over the project and said he was preparing legislation to underscore federal jurisdiction over the line. “We will not have the discussions in public but this project will go ahead.”
- Bank of Canada Governor Stephen Poloz’s cautious approach to interest rates is about to be challenged. While the central banker is expected to hold off from raising borrowing costs for a second straight policy decision on Wednesday, and retain a degree of prudence in his rhetoric, Poloz will probably face mounting pressure to return to the rate hike path soon, with inflation and growth beginning to pick up. Economists predict inflation will move well above the Bank of Canada’s 2 percent target in the coming months, while growth should also return to an above-2 percent pace after a recent slump. It would mark the first time since 2014 that both exceed that level simultaneously.
- President Donald Trump’s push for a quick resolution to Nafta talks is being stymied by persistent differences among the U.S., Canada and Mexico over a handful of the make-or-break issues. After seven rounds of talks rotating between the three countries, negotiators have entered what they’ve called a permanent round in Washington and are expected to keep going until a deal is struck. Digging in for more technical talks starting on Monday, they remain at loggerheads over regional content rules for automobiles and other sticking points, even as U.S. Vice President Mike Pence and Canadian Prime MinisterJustin Trudeau said over the weekend that an agreement could be wrapped up in weeks.
- Haven assets including Treasuries and gold dropped with European core debt, while the Stocks Europe 600 Index edged lower as traders assessed the military action’s aftermath.
- U.S. stock futures rose in New York as tensions in the Middle East eased after Russia indicated it wouldn’t retaliate after strikes against Bashar al-Assad’s regime in Syria. Investors await data on retail sales as well as Bank of America and Netflix earnings. S&P 500 Index futures climbed 0.5 percent, according to data compiled by Bloomberg. The Dow Jones and Nasdaq futures were also up by that amount.
- Asian equities slid, erasing an early advance, as uncertainty remained over the level of geopolitical risk in the Middle East following the American-led missile strike in Syria over the weekend, while U.S. corporate earnings season gets into full swing. The MSCI Asia Pacific Index fell 0.1 percent to 173.61 as of 4:42 p.m. in Hong Kong, after gaining as much as 0.3 percent. Japan’s Topix advanced 0.4 percent, while South Korea’s Kospi climbed 0.1 percent and the Hang Seng Index dropped 1.6 percent.
- Oil retreated from its highest close in three years in New York as Middle East tensions abated on speculation that U.S.-led military intervention in Syria won’t go beyond the weekend’s missile strikes. Futures slipped as much as 1.9 percent in New York. President Donald Trump declared “mission accomplished” a day after the U.S., France and the U.K. launched military strikes in response to Syrian leader Bashar al-Assad’s suspected chemical attack on civilians. British Foreign Secretary Boris Johnson insisted that the hit was a one-time move. The number of rigs drilling for crude in the U.S. rose to a three-year high, signaling production may rise from record levels.
- Gold holds last week’s advance as investors weigh impact of U.S.-led military strike on Syria and threat of more sanctions against Russia.
- Pebblebrook Hotel Trust raised its bid for LaSalle Hotel Properties to about $3.6 billion and added cash to the mix after an initial bid was rebuffed last month. Pebblebrook offered the equivalent of about $31.75 a share, about 6 percent more than the previous bid. A merger of the two luxury-hotel owners, both real estate investment trusts based in Bethesda, Maryland, would create a best-in-class portfolio of upscale hotels and the second-largest lodging REIT in the U.S., Pebblebrook said. At $2.4 billion, it’s smaller than LaSalle, which has a market value of almost $3.4 billion.
- Eldorado Resorts Inc. and real-estate company Gaming and Leisure Properties Inc. are teaming up to buy Carl Icahn’s casino operator, Tropicana Entertainment Inc., for $1.85 billion in cash, adding to a wave of consolidation in the gambling industry. Gaming & Leisure will pay $1.21 billion for most of Tropicana’s casinos and will lease the properties to Eldorado, the buyers said in statements Monday. Eldorado will pay the remaining $640 million of the purchase price, according to the statements. The boards of all three companies have approved the deal.
- Bank of America Corp. hit a new milestone in its years-long effort to get costs under control. First-quarter expenses totaled about 60 percent of revenue, the best ratio in more than five years. That helped push profit above analysts’ estimates, and corporate tax cuts spurred earnings to a record. Net interest income got a bigger boost than expected from higher interest rates, but fixed-income trading disappointed.
- Advent International Corp. is close to acquiring Sanofi’s European generics division in a deal valued at about 2 billion euros ($2.5 billion) including debt, people with knowledge of the matter said. The French drugmaker’s board is scheduled to meet as early as Monday to sign off on the deal, which could be announced in coming days, the people said, asking not to be identified because the deliberations are private. No final decision has been made and the talks may still fall apart, they said.
- Shire Plc agreed to sell its cancer unit to France’s Servier SAS for $2.4 billion, tightening the U.S.-based drugmaker’s focus on rare diseases and potentially making it more attractive to Takeda Pharmaceutical Co. as it considers a bid. The Shire unit sells treatments for leukemia and pancreatic cancer, the Lexington, Massachusetts-based company said in a statement Monday. The drugmaker said its board will consider using proceeds for a stock buyback after Takeda decides whether to go through with its contemplated offer.
- A few weeks ago, Donald Trump invited Vladimir Putin to meet — maybe even at the White House. After U.S.-led missile strikes in Syria, the two nations’ officials can’t get into the same room without insulting each other. Speaking at an emergency session of the United Nations Security Council Saturday, hours after the U.S., France and the U.K. launched missiles intended to take out Syria’s chemical weapons capability, American Ambassador Nikki Haley called on Russia — the main backer of the Syrian regime — “to take a hard look at the company it keeps.” Her Russian counterpart Vassily Nebenzia retorted that the U.S. and its allies were engaged in the “diplomacy of myth-making.”
- A federal judge will consider Donald Trump’s extraordinary request that she block his own Justice Department from viewing evidence about his private lawyer seized last week in an FBI raid. U.S. District Judge Kimba Wood on Monday will weigh Trump’s arguments at a hearing that will decide the next steps in a fast-moving investigation of the lawyer, Michael Cohen. Trump’s attorneys and Cohen will be in court — along with Stormy Daniels, the adult-film star who claims she had sex with Trump in 2006 and took a $130,000 hush payment shortly before the 2016 election.
- Amid the turmoil unleashed on Russian markets by the geopolitical tensions in Syria and U.S. President Donald Trump’s crackdown on oligarchs, one instrument is proving a winner: the biggest exchange-traded fund focused on Russian equities. VanEck Vectors Russia ETF saw inflows of $172.4 million last week, the biggest weekly contribution since December 2016. Before the start of April, the ETF had eight consecutive weeks of redemptions.
- Martin Sorrell’s abrupt exit from WPP Plc leaves the advertising empire in search of a new chief executive officer for the first time and vulnerable to a break-up, as the sprawling network of agencies faces its biggest challenges since the global financial crisis. Sorrell’s departure late Saturday from the world’s largest ad company puts WPP’s omissions in grooming a successor to its 73-year-old founder into sharp focus, even with shareholders long flagging the issue. It also raises the prospect of a split, as WPP loses the man holding the empire together.
- Milo Djukanovic, who defied Russia to take his Balkan state into NATO, won Sunday’s presidential election on a pledge to stay on course for European Union membership. Djukanovic, who had almost continuously served as premier or president in the country of 620,000 people for more than a quarter of a century, won 54 percent, eliminating the need for a runoff. His main challenger, Milan Bojanic, got 33 percent, according to results from the state election commission, based on 99 percent of votes counted on Monday. Bojanic conceded defeat, state broadcaster RTCG reported.
- The emergence of Elliott Advisors on Whitbread Plc’s shareholder register ratchets up the pressure on the U.K. company to consider splitting its Costa Coffee shops from its Premier Inn hotels. Whitbread shares surged as much as 8.6 percent in London, the most since September 2009 and more than when a smaller activist fund, Sachem Head,disclosed a stake in December. Elliott has presented Whitbread management with a plan to split the company via a demerger, the Financial Times reported on Sunday, citing people familiar with the matter. Some analysts have argued for years that such a move would generate increased value for shareholders. Whitbread CEO Alison Brittain said in January the company remains open-minded and committed to reviewing the company’s structure.
- The guessing game on Li Shufu’s intentions after buying the biggest stake in Daimler is up: Automakers must cooperate, or risk being swallowed up. That’s the takeaway from an editorial written by the owner of China’s biggest non-state carmaker in Frankfurter Allgemeine Zeitung on Sunday. Li, who in February bought a 9.7 percent stake in Daimler AG to add to his ownership of Volvo Car Group, said traditional carmakers need to “wake up” to make the switch to a business model based more on sharing technology to generate acceptable returns in future.
- India’s southwest monsoon, which waters more than half of the country’s farmland and is crucial for growth in Asia’s third-largest economy, is expected to be normal this year. Annual rain between June and September is likely to be 97 percent of a 50-year average, the India Meteorological Department said on Monday. The forecast has a margin of error of 5 percent, according to the department. Rainfall between 96 percent to 104 percent of the long-term average is considered normal.
- Pakistan plans to raise as much as $1 billion from its diaspora in its latest effort to boost foreign-exchange reserves that have dropped close to the lowest in three years. The government plans to launch an overseas certificate in U.S. dollars and rupees by June to raise between $500 million and $1 billion a year, Zafar Masud, director general of National Savings at the finance ministry, said by phone on Monday. Pakistan seeks bids for financial managers by April 30 for the transaction, he said.
*All sources from Bloomberg unless otherwise specified