By MacNicol & Associates In Morning Notes
December 15th, 2017
Daily Market Commentary
- Canadian stocks fell the most in four months as concerns grew that the U.S. tax overhaul won’t make it through the Senate, pressuring equities on both sides of the border. The S&P/TSX Composite Index lost 120 points or 0.7 percent to 16,016.46, the biggest drop since August. Health-care stocks tumbled 5.2 percent as Valeant Pharmaceuticals International Inc. fell 11 percent. JPMorgan downgraded Valeant, saying its valuation looks stretched.
- Bank of Canada Governor Stephen Poloz says investors are wasting their time looking for deeper meaning in the central bank’s recent messaging. Poloz has been promising to be “cautious” on future interest rate increases, after two hikes earlier this year. The wording has fueled a 5 percent drop in the Canadian dollar since early September. Poloz, who often uses metaphors to explain monetary policy, was asked at a press conference in Toronto whether his use of the word is really code for staying on hold.
- A clash of titans is shaping up in the luxury-jet set: Bombardier Inc. is seeking to use its new Global 7000 to wrestle away the Gulfstream G650’s crown as the most coveted private aircraft. Bragging rights aren’t all that’s at stake. Canada’s largest aerospace company is banking on the Global 7000 to drive sales in the coming years after ceding control of its marquee commercial jet to Airbus SE. Bombardier is playing catch-up to Gulfstream, a unit of General Dynamics Corp., which set the standard for speed and comfort with the first delivery of its G650 five years ago.
- The trains are running late for Canada’s oil producers just when they need them the most. After a two-week shutdown of one of the largest export pipelines to the U.S. caused oil to back up in Alberta tank farms, Canadian railroad companies struggling to fulfill commitments to ship other commodities aren’t able to help ease the oil glut. Canadian heavy oil prices sank this week to the cheapest level in four years versus U.S. benchmark West Texas Intermediate, leaving oil shippers racing to clear the glut in Alberta. Rail companies, who would be in line to see a big jump in oil business, are busy instead trying to catch up on delayed grain shipments and can’t fit more crude trains at their terminals.
- Stocks in Europe dropped and bonds gained as investors assessed messages from the Federal Reserve and European Central Bank meetings this week, while concerns about the U.S. tax overhaul lingered. The Stoxx Europe 600 Index followed benchmarks from Hong Kong to Tokyo and Sydney lower after all major U.S. equity gauges fell.
- Investors continued to gorge on U.S. stocks even as indexes hit new highs while caution prevailed on European shares, according to Bank of America Merrill Lynch, citing EPFR Global fund flow data. Funds tracking U.S. stocks attracted $7.8 billion in the week to Dec. 13, the bank said in a research report, the largest inflow since June. Investors withdrew $2.1 billion from European funds, the most in more than a year. And in a further blow to the active fund management industry, exchange-traded equity funds took in $31.4 billion, marking their second-largest weekly inflow, as mutual funds suffered the fourth-biggest outflows on record.
- Asian stocks declined on Friday, paring a weekly gain, as investors reduced risk amid uncertainty surrounding the fate of proposed U.S. tax changes. The MSCI Asia Pacific Index fell 0.4 percent to 170.36 as of 4:39 p.m. in Hong Kong, weighed down by technology and financial stocks after Republican Senator Marco Rubio threatened to oppose the tax bill unless Senate leaders agree to a larger credit for children.
- Oil steadied below $65 a barrel in London after a volatile week in which the market was shaken by the shutdown of a North Sea pipeline that underpins the Brent benchmark. Futures rose 0.2 percent, leaving prices in London little changed on the week. They jumped above $65 for the first time since 2015 earlier on Tuesday after the Forties pipeline in the U.K. shut down because of a crack. Those gains were eroded as the International Energy Agency’s voiced doubts the market would fully rebalance in 2018, diverging from the view of OPEC.
- Gold heads for first weekly advance in four after the Federal Reserve stuck to its projections of three hikes for next year and the dollar slides amid U.S. tax reform concerns.
- The dollar was set for its first weekly decline in three as the Federal Reserve’s cautious tone on the inflation outlook overshadowed indications of tighter monetary policy next year. The greenback was on course for weekly declines against all of its Group-of-10 peers, with the biggest losses versus the Australian and New Zealand currencies as firm commodity prices boosted their appeal. The euro’s advance against the dollar was curbed as the European Central Bank struck a similarly tentative tone, with President Mario Draghi saying inflation will undershoot its goal in 2020.
- Indonesia and Freeport-McMoRan Inc. may sign a new agreement as soon as this weekend that will lay out a road-map for the transfer of majority ownership of the giant Grasberg copper and gold mine to a local firm, according to people familiar with the proposal. The nation’s government, state-owned PT Indonesia Asahan Aluminium — known as Inalum, and Phoenix-based Freeport are set to back a so-called transaction completion agreement as early as Sunday, the people said, speaking on condition of anonymity as the details are private. Under the new deal, Inalum will seek to acquire London-based Rio Tinto Group’s joint venture interest in Grasberg by March, and subsequently aim to convert the interest into an equity stake, two of the people said.
- Russia’s central bank unexpectedly accelerated its pace of monetary easing after price growth fell to a record and a deal between OPEC and its allies to maintain oil production cuts until the end of 2018. The one-week auction rate was lowered to 7.75 percent from 8.25 percent, according to a statement on Friday. All 33 analysts surveyed by Bloomberg predicted a decrease to 8 percent. Governor Elvira Nabiullina will hold a news conference at 3 p.m. in Moscow, followed by the release of updated economic forecasts.
- Forget about electric cars with fuzzy prospects for profit or robotaxis that don’t yet exist. Detroit’s real big-money grudge match is over pickup trucks — and it’s about to get nasty. General Motors Co. and Fiat Chrysler Automobiles NV are planning to show redesigned full-size models at the Detroit auto show in January and start selling them later in the year. Both are trying to steal back some of the momentum that rival Ford Motor Co. has generated by overhauling its F-150 and bigger Super Duty trucks.
- The world’s biggest oil buyers are getting pickier about their American crude purchases. Asian refiners are discovering that the quality of cargoes varies, leading to fluctuations in the type of fuels they can produce. The shale boom and the end of a U.S. oil-export ban have proven a boon to buyers from China to India as traditional suppliers such as Saudi Arabia cut output to clear a glut. And while shipments from the Gulf Coast have soared, refiners are shifting their focus to crudes with consistent characteristics.
- The two most critical forecasts of global oil markets offer contrasting visions for 2018: one in which OPEC finally succeeds in clearing a supply glut, and another where that goal remains elusive. In the estimation of the Organization of Petroleum Exporting Countries, production curbs by the cartel and its allies will finally eliminate the excess oil inventories that have depressed crude prices for more than three years. But in the view of the International Energy Agency, which advises consumers, that surplus will barely budge.
- Bain Capital agreed to manage Harvard University’s $3.4 billion in direct real estate investments and hire 22 people who oversaw the portfolio at the Ivy League school endowment. The deal, effective Feb. 1, represents a significant expansion for the Boston-based private equity firm and a step forward for the university as it overhauls Harvard Management Co., which manages the $37.1 billion endowment. The portfolio consists of direct investments in more than 350 properties.
- Airbus SE put the head of its helicopters unit in line to replace Chief Executive Officer Tom Enders after a management shakeup, as the European planemaker seeks to move past corruption allegations and inject fresh blood into its leadership. Tom Enders plans to step down when his term ends in April 2019, the Toulouse, France-based company said Friday in a statement. His No. 2, Chief Operating Officer Fabrice Bregier will leave in February after missing out on the CEO job.
- A Hong Kong real estate developer is in exclusive talks to buy a group of offices in London’s King’s Cross district from the Abu Dhabi Investment Authority for about 300 million pounds ($403 million), two people with knowledge of the negotiations said. A firm linked to Nan Fung Group Holdings Ltd. has agreed outline terms to purchase most of the Regent Quarter development, betting that the arrival of technology companies in the area including Google parent Alphabet Inc. will increase rents, the people said, asking not to be identified because the talks are private.
- Deutsche Telekom AG is taking over the Dutch business ofTele2 AB to strengthen its position as the third-largest phone carrier in the country, bulking up to take on the two market leaders. By absorbing the No. 4 carrier, Tele2 Netherlands, the German company will recharge its challenge on former monopoly Royal KPN NV as well as the joint venture of Liberty Global Plc and Vodafone Group Plc, created last year amid intense competition in the Dutch market.
- AirAsia Bhd., Asia’s biggest discount carrier, is in advanced talks to sell control of its aircraft leasing unit to an arm of state-owned China Everbright Group, people with knowledge of the matter said. China Everbright is currently seeking Chinese regulatory approval to transfer the acquisition funds overseas, according to one of the people, who asked not to be identified because the information is private. Malaysia-based AirAsia has been seeking a valuation of more than $1 billion for the business, which is known as Asia Aviation Capital Ltd., the people said.
- Sunac China Holdings Ltd. shares tumbled by the most since July after China’s most indebted developer raised $1 billion in a top-up share placement that priced near the low end of a marketed range. Sunac shares fell 10 percent in Hong Kong at 9:26 a.m., the biggest intraday decline since July 18. Before today, its shares surged about 447 percent this year to rank among the best performers on the MSCI China Index.
*All sources from Bloomberg unless otherwise specified