August 30th, 2017

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks closed higher, reversing a triple-digit decline as initial fears over North Korea’s saber-rattling eased and materials and industrials shares rose. The S&P/TSX Composite Index added 31 points or 0.2 percent to 15,082.70 after earlier falling as low as 14,934. Materials shares were the biggest gainers, rising 1 percent as gold prices touched a nine-month high.
• For the third quarter of 2017, National Bank is reporting net income of $518 million compared to $478 million in the third quarter of 2016, a $40 million year-over-year increase driven by net income growth in its main business segments. Diluted earnings per share stood at $1.37 in the third quarter of 2017 compared to $1.31 in the same quarter last year.
• Apple Inc.’s surprise foray into Canadian-dollar debt has pushed corporate issuance to a near-record with more companies expected to beat a path north in search of attractive borrowing rates. Foreign companies issuing in loonies have sold about C$15.2 billion ($12.2 billion) worth of debt this year — the busiest year for Maple bonds since 2007. That’s helped drive sales in the Canadian market to about C$70.3 billion this year.
• After starting the year at a torrid pace, the explorers of Canada’s shale riches are taking a step back, much like their peers in the Permian Basin south of the border. As oil’s rebound stalls and tight-rock operations in Alberta and British Columbia gush enough crude and natural gas to meet targets for the year, producers like Painted Pony Energy Ltd. and Baytex Energy Corp. may be putting the brakes on a spending spree that saw drilling in the first half more than double to over 3,000 wells.
• There’s a new front in the Canada-U.S. trade war over trees: newsprint. A Washington state paper maker is asking the U.S. government to impose duties on Canadian imports of uncoated groundwood paper, used in everything from newsprint to book publishing. North Pacific Paper Co., or Norpac, alleges Canadian imports are subsidized and are increasingly taking market share from domestic producers, according to documents filed Aug. 9 with the International Trade Administration.

 

 

World Headlines

• Losses in the Stoxx Europe 600 Index swelled to 1 percent on Tuesday, about five times as much as South Korea’s benchmark. While the European gauge rebounded on Wednesday along with global stocks, it has still given up three-quarters of annual gains that in May had reached almost 10 percent.
• Selling short in a rallying market looks reckless, but in 2017 bears are not only resisting the rising tide but thriving in it. Exchange data shows they’ve increased bearish wagers to the highest level since November. That alone is notable: not since the bull market began has an advance like this year’s 9 percent jump in the S&P 500 failed to result in an epidemic of covering.
• Asian equities advanced as fears of escalating geopolitical risk eased following U.S. President Donald Trump’s tempered response to North Korea’s launch of a ballistic missile across Japan.
• Gasoline rose to a two-year high as Tropical Storm Harvey hit the U.S. Gulf coast again after already knocking out a fifth of the nation’s refining capacity. Motiva Enterprises LLC’s Port Arthur refinery, the country’s biggest, was said to be shutting because of severe flooding. The disruption helped send motor fuel as much as 3.3 percent higher in New York, while the resulting reduction in demand from plants hit by the storm kept crude near a five-week low.
• Gold regained its footing, after slipping from a 10-month high, on nervousness over U.S. tension with foe North Korea. Investors increased holdings in ETFs.
• The pound’s latest Brexit-fueled decline may be getting serious enough to command Mark Carney’s attention once again. Sterling’s weakening to the lowest since October 2016 in trade-weighted terms has brought the currency near the level that prompted the Bank of England governor to point out at the time that he and his colleagues weren’t “indifferent” to the exchange rate.
• Euro-area economic confidence rose to the highest level in a decade as European Central Bank policy makers prepare for a discussion next week about whether and how to pare back stimulus. An index of industry and consumer sentiment increased to 111.9 in August from a revised 111.3 in July, the European Commission in Brussels said on Wednesday. Economists surveyed by Bloomberg predicted an increase to 111.3 from a previously reported 111.2.
• Donald Trump’s threats to exit the North American Free Trade Agreement may well be within the bounds of a president’s power. But legal experts warn such a move could be tested by heavy congressional fire and lengthy court battles. There’s no legal consensus whether the U.S. president can act on his own to end the tariff-free benefits of Nafta without lawmakers’ approval. Trump seems to think he can, and warned as recently as Monday that he may terminate the trade accord he has assailed as a bad deal for American workers.
• United Technologies Corp. is nearing a deal to buy Rockwell Collins Inc. for more than $20 billion to create one of the world’s biggest aircraft-equipment makers, the Wall Street Journal reported. The companies are discussing a price of no more than $140 for each Rockwell share and an agreement could be struck as early as this weekend, the newspaper said, citing unidentified people familiar with the situation. The acquisition price may yet change or the deal may fall apart, the Journal said. Rockwell’s stock closed at $130.74 in New York on Tuesday.
• North Korean leader Kim Jong Un said the test-firing of a missile over Japan on Tuesday was a “meaningful prelude” to containing the American territory of Guam, adding he will continue to watch the response of the U.S. before deciding on further action.
• Toyota Motor Corp. is pushing deeper into the ride-sharing business. Toyota Tsusho Corp., the automaker’s trading arm, will invest an undisclosed amount in Grab, Southeast Asia’s leading ride-hailing operator. Toyota Motor said it will work with Grab to provide services in the region, a year after the carmaker bought a small stake in Uber Technologies Inc. as it explores new revenue models.
• Telkom SA SOC Ltd. said the South African government is considering various options regarding its 39 percent stake in the fixed-line operator as it seeks to raise cash to bail out the country’s unprofitable national airline. The state’s shares in the former telecommunications monopoly are worth about 13 billion rand ($996 million). Lawmakers are in talks with government-owned companies including the Industrial Development Corp. and the Public Investment Corp. to buy as much as 28 percent of the company.
• Resilient economic growth and a government campaign against excessive leverage are helping China’s largest banks, curbing their bad loans and underpinning their net interest margins. Those factors helped three of the big banks post higher-than-estimated second-quarter net income, led by Bank of China Ltd.’s 23 percent surge, the biggest increase in six years.
• Warren Buffett’s Berkshire Hathaway Inc. exercised warrants to buy 700 million shares of Bank of America Corp., locking in an $11.5 billion investment gain in a move that was telegraphed earlier this year. Buffett invested $5 billion in Bank of America in 2011 in exchange for preferred stock and the right to buy common shares. The cash infusion helped the bank put to rest doubts about whether it had enough capital, and its shares have more than tripled since then.
• Federal Reserve policy makers hoping for a pick-up in inflation in the coming months may end up being frustrated by a quirk in the price data. In eight of the last 10 years, the key inflation rate that the Fed focuses on in the short run has come in lower in the second half of the year than in the first when the numbers are initially reported.
• Axiata Group Bhd. agreed to pay $940 million for Veon Ltd.’s telecommunication tower unit in Pakistan, making the infrastructure arm of Malaysia’s biggest mobile operator the South Asian country’s largest independent tower owner.
• Lattice Semiconductor Corp. is considering seeking President Donald Trump’s approval of its proposed takeover by a China-backed buyer after a secretive national security panel repeatedly rebuffed the companies, according to a person familiar with the matter. Going to Trump is among the options the companies are considering for the $1.3 billion deal, including extending talks with the security panel or walking away from the transaction
• Irish authorities may revisit caps on banker pay and bonuses at bailed-out lenders if the nation’s economic revival continues, two people familiar with the situation said. The government has limited salaries to 500,000 euros ($598,000) and banned bonuses at banks rescued by taxpayers during the financial crisis. While there’s no proposal on the table, the policy may be reconsidered should wages across the economy keep rising.
• Almost 5 percent of small and medium-sized German banks missed regulatory capital requirements in a stress test conducted by Germany’s two top financial watchdogs. The impact of the simulation carried out by the Bundesbank and BaFin would have been higher if the stress test had factored in contagion effects, Bundesbank board member Andreas Dombret said at a press conference in Frankfurt.
• Chinese airline shares were among the best performers Wednesday as strength in the yuan, which is at a 14-month high, encourages investors to pile in even after earnings sagged at one of the country’s biggest carriers. The yuan’s gains should alleviate pressure at China’s top three airlines as they have sizable holdings of dollar-denominated debt. China Southern Airlines Co., which reported an 11 percent drop in first-half net income, climbed as much as 5.6 percent in Hong Kong.
• Sasseur Group, a Shanghai-based developer of outlet malls, is planning a Singapore initial public offering of some of its properties in a deal that could raise as much as S$600 million ($442 million), according to people with knowledge of the matter.

 

 

*All sources from Bloomberg unless otherwise specified