By MacNicol & Associates In Morning Notes
April 17th, 2018
Daily Market Commentary
- Canadian stocks rose for a third day as gains in cannabis, industrial and technology shares offset declines in commodity producers. The S&P/TSX Composite Index added 26 points or 0.2 percent to 15,300.38, the highest close in seven trading days. Pot stocks posted strong gains for a second day after U.S. President Donald Trump said Friday he’d support states that have legalized marijuana. Aphria Inc. rose 7.4 percent.
- Canada’s inter-provincial fight over Kinder Morgan Inc.’sTrans Mountain pipeline escalated as oil-producing Alberta threatened to cut off fuel shipments to neighboring British Columbia. Alberta on Monday introduced legislation allowing it to halt exports of oil and gas to B.C., ramping up pressure on the coastal province to drop its opposition to the pipeline expansion. Alberta Premier Rachel Notley made clear she doesn’t expect to have to use the new powers, but wants to make sure the province has every available tool in its fight to ensure the Trans Mountain expansion gets built.
- Even as expectations for a Bank of Canada interest-rate hike at Wednesday’s meeting tumble and the outlook for future increases slows, at least one trader appears to be betting that the market’s dovish read is overdone. Heavy block activity seen in Canada 10-year note futures last week was consistent with a paring of the huge, cross-market wager that was built up toward the end of 2017 and into early 2018 that profited from a widening yield differential with the U.S. The unwinding of the divergence play, and its timing, suggest that some may now be growing uneasy with how little is priced in to the path of BOC policy versus the Federal Reserve.
- Canadians urged Prime Minister Justin Trudeau to concede on a U.S. demand in Nafta negotiations around investor disputes, while holding firm on calls for more environmental and labor protection. The most frequent advice the government heard in public consultations before North American Free Trade Agreement talks opened in August was to eliminate Chapter 11, the part of the pact that deals with investor-state dispute settlement, according to documents obtained by Bloomberg News through a freedom of information request. The government began the consultation process last year by asking for written submissions from the public after the U.S. gave notice it wanted to renegotiate the 24-year-old agreement.
- European shares gain after U.S. stocks rebounded; investors’ focus returning to earnings and the economic outlook, from geopolitical risks. The Stoxx Europe 600 Index rebounded from Monday’s drop.
- U.S. equity futures advanced alongside stocks in Europe as investors switched their focus to earnings season following the market turmoil of recent weeks. Contracts for the S&P 500, Nasdaq, and Dow all shrugged off weakness in Asia to point to a higher U.S. open as traders await results from companies including Goldman Sachs Group Inc.
- Technology shares paced declines on the MSCI Asia Pacific Index after China’s ZTE Corp. was blocked from buying crucial American technology and its suppliers fell. Data showed China’s economy expanded in line with estimates in the first quarter, but industrial production missed estimates in March even as retail sales came in stronger than expected.
- Oil steadied after the biggest loss in more than a week as OPEC’s hints at extending output cuts fanned optimism and investors anticipated a drop in U.S. stockpiles. Futures in New York were little changed after losing 1.7 percent on Monday. Kuwait said the Organization of Petroleum Exporting Countries and allied producers will discuss extending an agreement to cut oil output into 2019. Adding to the optimism was a survey of analysts by Bloomberg that forecast U.S. crude inventories probably fell last week after holding below the five-year average over the previous month.
- Gold fluctuated between small gains and losses as the dollar and equities moved in opposite directions and traders awaited comments from Fed officials this week. Palladium drops from highest since March 1.
- Aluminum surged to a six-year high in London as the shock of U.S. sanctions against United Co. Rusal continues to reverberate, with buyers rushing to secure supplies and stockholders looking to unload metal produced by the Russian aluminum giant. The metal, used to make everything from cans and cars to airplanes, rallied as much as 1.5 percent to $2,435 a metric ton on the London Metal Exchange, the highest intraday price since September 2011. It slipped to $2,391 at 11:21 a.m. after inventories on the bourse rose.
- Deutsche Bank AG has called off talks to sell its retail and private wealth businesses in India to IndusInd Bank Ltd., people with knowledge of the matter said. The German lender is considering keeping the operations after former Chief Executive Officer John Cryan stepped down this month, the people said, asking not to be identified because the information is private. The two businesses have a portfolio size of about 300 billion rupees ($4.6 billion), according to one of the people.
- U.K. wages are rising at their fastest pace in almost three years, raising the prospect of an end to the squeeze on living standards. Annual pay growth excluding bonuses accelerated to 2.8 percent in the three months through February, the Office for National Statistics said Tuesday. Inflation averaged 2.9 percent in the same period and is forecast to fall toward 2 percent this year. The return of real-income growth will be good news for hard-pressed households after more than a year of wages lagging behind prices. That suppressed consumer spending in 2017, holding back overall economic growth.
- Singapore’s state-owned investment firm Temasek Holdings Pte is spending 3 billion euros ($3.7 billion) to help Bayer AG finance its planned takeover of U.S. competitor Monsanto Co. Temasek will hold 4 percent of Bayer after it agreed to buy 31 million new shares in a capital increase announced late Monday. The firm previously held 0.4 percent. Bayer’s $66 billion purchase of Monsanto is nearing the finish line as the companies finalize an agreement with the U.S. Justice Department, a person familiar with the matter said last week.
- Johnson & Johnson opened the U.S. health-care earnings season with a stronger outlook. J&J raised its sales guidance for 2018 to 81 billion to $81.8 billion after its fourth-quarter profit beat analysts’ estimates. The New Brunswick, New Jersey-based company also announced a restructuring of its global supply chain to generate as much as $800 million in annual pretax savings by 2022, according to a statement Tuesday. The move will cost as much as $2.3 billion in pretax charges, J&J said, without providing details on the restructuring itself.
- Sanofi plans to sell its European generic-drug unit to buyout firm Advent International Corp. for 1.9 billion euros ($2.4 billion) as part of a broader move by Chief Executive Officer Olivier Brandicourt to focus resources on biotechnology and new medicines. Advent has made a binding and fully financed offer, and the companies are in exclusive negotiations, Paris-based Sanofi said in a statement Tuesday. The deal should close by the end of the year, it said.
- The People’s Bank of China will cut the reserve-requirement ratio for some banks by one percentage point, effective April 25. The aim of the move is to support smaller enterprises, ensure stable liquidity in the banking system and improve its structure, the central bank said in a statement late Tuesday. The PBOC said the reduction in funds required to be parked at the central bank will apply to large commercial banks, joint-stock banks, city commercial banks, rural commercial banks, and foreign lenders.
- India’s Finance Minister Arun Jaitley assured citizens that there is enough cash in circulation amid reports of an acute shortage of currency notes in certain parts of the country. There is a spurt in currency demand, India’s Economic Affairs Secretary Subhash Garg told reporters in New Delhi on Tuesday. Additional cash is being supplied to meet the demand and notes equivalent to 25 billion rupees are being printed daily, he said.
- The European Central Bank is pushing Societe Generale SAto accelerate the search for a successor to Deputy Chief Executive OfficerDidier Valet, according to people with knowledge of the matter. The lender’s supervisor has expressed some concern about the lack of succession planning for Chief Executive Officer Frederic Oudea in the event of an emergency, the people said. That’s prompting the bank to look internally and externally because executives at Societe Generale may not be suitable, according to one person.
- China will let foreign automakers from Volkswagen AG to Ford Motor Co. own more than 50 percent of local ventures, removing a two-decade restriction and giving a boost to global companies seeking to capture a greater share of the world’s largest car market. Electric-car makers such as Tesla Inc. will see the swiftest benefit, with ownership limitation for such businesses lifting as soon as this year. The cap for commercial vehicles will be eliminated in 2020 and that for passenger vehicles in 2022, the agency that oversees industries said Tuesday.
- Russia is using compromised computer-network equipment to attack U.S. and British companies and government agencies, the two countries warned in an unprecedented joint alert. The warning on Monday came from the U.S. Department of Homeland Security and Federal Bureau of Investigation and Britain’s National Cyber Security Center. It included advice to companies about how to protect themselves and warned specifically of attacks on routers, the devices that channel data around a network.
- The Hong Kong Monetary Authority increased its purchases of local dollars to $2.9 billion, helping push three-month interbank borrowing costs to the highest since Jan. 4. The de facto central bank has bought HK$22.4 billion ($2.9 billion) of the currency since it fell to the weak end of its permitted trading band last week. The Hong Kong dollar’s three-month Hibor rate rose to 1.29714 percent, though its discount to the greenback’s borrowing costs stayed at more than one percentage point, which still makes shorting the Hong Kong dollar lucrative.
- Donors poured money into GOP coffers in the first part of this year, but their loyalty may be tested in coming months by turmoil at the Republican National Committee after the resignations of two top fundraising officials and a criminal investigation involving a third. The GOP’s hold on the presidency and Congress has helped the RNC surpass its Democratic counterpart in every month reported so far this year. PresidentDonald Trump’s 2020 reelection committee and affiliated joint RNC fundraising entities have also collected sums that are unprecedented so early in a presidency.
- Apple Inc. plans to integrate recently acquired magazine app Texture into Apple News and debut its own premium subscription offering, according to people familiar with the matter. The move is part of a broader push by the iPhone maker to generate more revenue from online content and services. The Cupertino, California company agreed last month to buy Texture, which lets users subscribe to more than 200 magazines for $9.99 a month. Apple cut about 20 Texture staff soon after, according to one of the people.
- Philippine stocks, already the world’s worst performers this year, fell to the lowest in almost a year Tuesday, bringing to more than $20 billion the loss in market value for the country’s benchmark index since the start of 2018. The Philippine Stock Exchange Index dropped as much as 2.3 percent in Manila trading, on track for its lowest close since May 2017, with five stocks falling for each that gained. The gauge has lost almost 10 percent since the end of 2017 as rising inflation, Asia’s worst performing currency and a brewing U.S.-China trade war have increased investor caution toward one of the region’s most expensive markets.
- Vingroup JSC, Vietnam’s biggest developer, is targeting an initial equity offering of as much as $2 billion for its luxury residential arm, people with knowledge of the matter said. The Hanoi-based group’s Vinhomes JSC unit is considering seeking a valuation of $13 billion to $16 billion in the share sale, according to one of the people, who asked not to be identified because the information is private. Vinhomes, which began gauging demand for the offering on Tuesday, aims to finalize a list of cornerstone investors by the end of this week, the person said.
*All sources from Bloomberg unless otherwise specified