By MacNicol & Associates In Morning Notes
December 6th, 2017
Daily Market Commentary
- Investors in Canadian assets may be wise to look through the stronger-than-expected economic data last week because they probably won’t alter the Bank of Canada’s wait-and-see approach to monetary policy. The loonie jumped the most in three months and short-term rates spiked on Friday after Canada posted the biggest monthly increase in jobs since 2012 and the economy grew faster than expected in the third quarter. The reports are unlikely to derail Bank of Canada Governor Stephen Poloz’s cautious stance, with growth expected to slow in 2018 and stretched households are vulnerable to a jump in borrowing costs.
- Nestle SA’s surprise $2.3 billion acquisition of Canadian supplements maker Atrium Innovations shows how much Chief Executive Officer Mark Schneider is changing direction at the world’s largest food company, entering a business that it previously considered fraught with dangers. Amid speculation that the Swiss KitKat maker might buy the consumer health businesses that Pfizer Inc. and Merck KGaA have said they’re considering selling, Nestle announced the purchase of the lower-profile Atrium on Tuesday.
- Canadian Prime Minister Justin Trudeau continued to push his progressive trade message in China, even as his efforts to launch formal talks with Beijing appeared increasingly doomed. Trudeau said in a speech in the southern Chinese manufacturing powerhouse of Guangdong on Wednesday that he and Chinese President Xi Jinping agreed on the need to work together on economic growth. He reaffirmed calls for China to accept elements it doesn’t usually seek in trade deals, such as provisions for labor, gender and environmental rights.
- Rogers Communications Inc. is considering selling assets such as baseball’s Toronto Blue Jays and a stake in media company Cogeco Inc. to free up capital for other investments, Chief Financial Officer Tony Staffieri said. The Toronto-based telecommunications giant wants to get more value for the assets, though no deal is imminent, Staffieri said at the UBS Global Media and Communications conference in New York. Rogers plans to increase investments in its wireless network as part of a plan to capture a surge in data use, Chief Executive Officer Joe Natale toldthe Globe & Mail this week. Rogers shares have soared 26 percent this year, outpacing rivals Telus Corp. and BCE Inc. by more than double, as wireless revenue soared and customer retention improved.
- European stocks fall for a second day, following Asian peers lower, amid a renewed selloff in technology shares as some investors lock in yearly gains. The Stoxx Europe 600 Index falls 0.8%. Cyclical industries including miners and automakers are also among the biggest losers, while real estate stocks outperform, helped by an 18-percent surge in Intu Properties after rival Hammerson made an all-share offer.
- The dollar inched higher and Treasuries climbed as focus turns to efforts to avert a U.S. government shutdown on Saturday. Global markets have succumbed to a bout of profit taking this week as traders move out of some of 2017’s biggest winners, including technology shares and emerging-market equities. The selloff comes as investors assess U.S. tax reform developments and wrangling over the American debt ceiling after a Republican plan to avoid a federal shutdown on Saturday were thrown into disarray by infighting.
- Hong Kong’s benchmark index fell the most in 13 months as losses steepened in some of the year’s top performing stocks, including Geely Automobile Holdings Ltd. and AAC Technologies Holdings Inc. The Hang Seng Index slid 2.1 percent to its lowest close since Oct. 26. The gauge has dropped in seven of the past eight sessions and is more than 5 percent below a decade high reached on Nov. 22.
- Oil slid toward $57 a barrel after industry data showed U.S. gasoline stockpiles expanded for the first time in four weeks. Futures dropped 0.6 percent in New York after rising 0.3 percent on Tuesday. Motor-fuel inventories climbed by 9.2 million barrels last week, the American Petroleum Institute was said to report. That would be the biggest gain since January 2016 if replicated in government data due later on Wednesday. Nationwide crude stockpiles declined, according to the API data.
- Gold steadies near lowest level in 2 months as investors weigh impact of U.S. tax bill and as Federal Reserve’s tightening path comes into focus, with weaker equities providing support.
- Copper is coming off the biggest one-day slump in two years and the mood in the market is souring. Even though prices are still up dramatically this year. Copper inventories held in global exchanges remain stubbornly high, even after heavy disruptions to supply from mines in Chile and Indonesia at the start of the year. A large inflow on to the London Metal Exchange was a catalyst in Tuesday’s rout, as it sent a reminder that the market isn’t short of metal.
- British Prime Minister Theresa May’s chances of getting a Brexit breakthrough this week receded as the Northern Irish party that props up her government continued to resist a deal and she faced a cabinet rebellion over her strategy for quitting the bloc. The Democratic Unionist Party thinks it will be challenging to get a deal done this week as it’s demanding significant changes to a text on what the Irish border should look like after Brexit, according to a person familiar with the party’s thinking. That risks pushing May beyond the deadline set by the European Union if it wants divorce talks to move on to trade by year-end.
- India’s central bank kept interest rates unchanged as rebounding inflation limits room to spur an economy struggling to recover from disruptive government policies. The benchmark repurchase rate was left at 6 percent, the Reserve Bank of India said in a statement in Mumbai on Wednesday. Five of the six-member monetary policy committee voted for the move, which was predicted by 42 of 48 economists in a Bloomberg survey with the rest seeing a cut to 5.75 percent.
- Home Depot Inc., the world’s largest home improvement retailer, said it may repurchase as much as $15 billion in shares and will boost investment in the business in the next three years. Sales may reach as much as $119.8 billion in fiscal 2020, growing between 4.5 percent to 6 percent annually, the Atlanta-based company said in a statement Wednesday. It also reiterated earlier earnings and sales growth forecasts ahead of a meeting with investors and analysts.
- Once again, thousands are fleeing a wildfires in California. And, once again, the worry on Wall Street is that a major electric utility might end up on the hook for the damages. Shares of Edison International plunged the most in 15 years on Tuesday, wiping out more than $3 billion in market value, as a fast-moving fire fanned by high winds in Southern California’s Ventura and Santa Barbara counties charred 50,000 acres of land, burned hundreds of homes and damaged citrus crops. Firefighters were still trying to contain the blaze late Tuesday.
- A key U.S. Senate panel has cleared a bill that could bring financial firms a significant chunk of the regulatory relief they’ve sought since the Dodd-Frank Act became law in 2010. Bipartisan legislation advanced Tuesday by the Senate Banking Committee would revise many parts of the sweeping 2010 overhaul, particularly those pertaining to small and regional banks. It would free midsize lenders from some of the strictest post-crisis oversight and cut compliance costs for community banks. It also includes some tweaks that Wall Street has sought, including a change to how banks classify municipal bonds.
- China is upending the global plastics market. The world’s biggest user of scrap has stopped accepting shiploads of other countries’ plastic trash as it phases in a new ban. That’s bad news for the recycling industry, as China has been a major consumer of salvaged materials it processes into resin that ends up in pipe, carpets, bottles and other cogs of modern life. China has begun buying brand new plastic to replace all the recycled scrap — and that’s great news for U.S. chemical makers such as DowDuPont Inc., which are scrambling to find markets for millions of tons of new production amid an industry investment binge. U.S. exports of one common plastic are expected to quintuple by 2020.
- At a time of ever-growing Internet sales, the U.K.’s biggest publicly traded mall owners are combining forces. Hammerson Plc has agreed to buy its smaller competitor, Intu Properties Plc, in a deal that values the latter at about 3.4 billion pounds ($4.6 billion). Hammerson is seeking to increase its scale to combat the threat of online stores and sluggish consumer spending. The proposed all-share deal would create a real estate investment trust with 21 billion pounds of assets, the companies said in a statement Wednesday. Including assumed debt, the transaction values Intu at about $10.9 billion, making it the biggest-ever acquisition of a U.K. real estate company, according to data compiled by Bloomberg.
- Samsung Heavy Industries Co. slumped 29 percent in Seoul trading, wiping $1.3 billion off its market value, after forecasting surprise losses and saying it needs to raise more cash — dimming signs of a recovery in global shipbuilding. The world’s third-largest shipbuilder said Wednesday it plans to plug a cash-flow shortage by selling 1.5 trillion won ($1.4 billion) of new shares, its second rights offering in as many years. Dwindling demand for new vessels and offshore projects will push the company into losses this year and next, compared with analyst estimates for a profit.
- A faction of conservative Republicans is raising warnings about federal spending, two weeks after backing tax-cut legislation that would raise federal deficits by $1 trillion over the next decade. They warn that compromises struck with moderate Senate Republicans, as well as negotiations to keep Democrats from filibustering spending bills, will contain measures that increase government spending. House leaders say the best tactical move is to extend the government shutdown deadline to Dec. 22, while conservatives instead are pushing for a funding extension until Dec. 30. Current funding runs out on Saturday.
- DaVita Inc. agreed to sell its physician network business to Optum, a division of the biggest U.S. health insurer, for $4.9 billion in cash. Joe Mello, chief operating officer of DaVita Medical Group, will continue in a leadership role at the entity created by combining the businesses, according to a statement on Wednesday. The transaction is expected to close in 2018, pending regulatory approval. The deal will allow doctors linked to DaVita Medical, which manages groups of physicians in California, Colorado, Florida, Nevada, New Mexico, Pennsylvania and Washington, to use Optum’s data and analytics. Optum, part of UnitedHealth Group Inc., already works with more than 30,000 doctors across more than 230 urgent-care clinics and 200 surgery centers, as well as regular doctors’ offices.
- AMC Entertainment Holdings Inc., the largest U.S. cinema chain, has been approached in the past three months by six companies interested in acquiring stakes or buying theaters, Chief Executive Officer Adam Aron said. No deal is imminent, and controlling shareholder Dalian Wanda Group Co.isn’t likely to be interested in selling, Aron said in a phone interview Tuesday. Nonetheless, the 57 percent decline in AMC’s stock price this year has attracted potential investors, he said.
- Steinhoff International Holdings NV plunged after its chief executive officer resigned amid accounting irregularities, rocking a company that rapidly expanded from its roots in South Africa into a retail empire spanning Australia, Europe and the U.S. The owner of the France-based Conforama furniture chain, Mattress Firm in the U.S. and Poundland in the U.K. said late Tuesday that CEO Markus Jooste quit as it appointed auditor PwC to probe the matter. The stock slumped as much as 60 percent Wednesday in Frankfurt, wiping out more than 7 billion euros ($8.3 billion) in value.
- Korea Electric Power Co. has been picked as the preferred bidder for Toshiba Corp.’s nuclear reactor project in the U.K. amid a push by the South Korean company to expand into the international market. Kepco, as the utility is known, has started exclusive negotiations with Toshiba for NuGen, which is developing a nuclear power plant in northwest England’s Moorside, the company said in a statement Wednesday. Negotiations will take several months and the deal, which requires U.K. approvals, could be completed in the first half of next year, it said. A Toshiba spokeswoman confirmed the decision.
*All sources from Bloomberg unless otherwise specified