By MacNicol & Associates In Morning Notes
February 12th, 2018
Daily Market Commentary
- Canadian stocks fell to their lowest level since early September after a wild day that saw the benchmark rise as much as 0.3 percent and fall as much as 1.9 percent. The S&P/TSX Composite Index closed down 31 points or 0.2 percent to 15,034.46. Materials were the biggest decliners, losing 1.1 percent as gold miners retreated from Thursday’s gains. Guyana Goldfields Inc. fell 7.6 percent and Eldorado Gold Corp. lost 7.1 percent.
- The U.S., Canada and Mexico are at odds over a proposal to beef up Nafta’s powers to cut red tape, as one major business group warns efforts to simplify regulations could end up taking a step backward. Canada wants to roll the existing U.S.-Canada Regulatory Cooperation Council into the North American Free Trade Agreement, a pact Donald Trump is threatening to quit. Advocates of the Canadian proposal liked the idea of entrenching stronger harmonization of rules on things like food safety and drones while also adding Mexico into the mix — and doing so would also boost another Trump goal of cutting red tape for businesses.
- Boeing Co.’s slow-selling 737 Max 7 has a big fan in Western Canada. WestJet Airlines Ltd. next year will become the second carrier, after Southwest Airlines Co., to operate the smallest version of Boeing’s upgraded workhorse. The Calgary-based company is set to receive five of the single-aisle jetliners next year. Saretsky is counting on the Max 7 and two larger variants of the 737 to boost the number of seats and reduce fuel consumption, which should contribute to WestJet’s push to achieve annual savings of as much as C$200 million ($160 million) over the next five years. The CEO is also betting on efficiencies from the deployment of 10 Boeing 787 Dreamliners as WestJet expands long-distance service.
- Investors are betting a takeover of Aecon Group Inc. is no sure thing, with shares posting their biggest one-week decline since the C$1.19 billion ($945 million) offer from a Chinese buyer amid questions of whether the Canadian government will review it on grounds of national security. Canada’s analysis into whether the transaction is in the country’s economic “net benefit” has stretched into overtime, while Prime Minister Justin Trudeau’s government remains silent on whether it will take an additional look at how the deal may impact national security.
- European equities rally after a two-week selloff that reversed annual gains and sent Germany’s benchmark into a correction. The Stoxx Europe 600 Index rises 1.2%, with all industry groups up. Banks and health-care shares contribute the most to the advance, while miners track metal prices higher.
- Investors got a reprieve from the rout in stocks and the highest volatility spike since 2015. The dollar fell with Treasuries amid concern President Donald Trump’s budget proposal will drop his party’s goal to balance the budget in 10 years.
- Asian stocks rose Monday, taking a break from the global rout that has gripped investors since late January, after U.S. stocks gained on Friday and S&P 500 Index futures surged in Asia trading hours. Japan is closed for a holiday today. The MSCI Asia Pacific excluding Japan Index advanced 0.6 percent to 557.62 as of 4:44 p.m. in Hong Kong after its biggest weekly fall since September 2011.
- While oil is rebounding from its biggest weekly decline in two years, a surge in U.S. shale still looms over the market. Futures in New York were up about 2 percent after tumbling 9.6 percent last week. Prices are near $60 a barrel after data showed last Friday that American drillers raised the number of rigs exploring for oil to the highest since April 2015. That’s raising fears that a gain in U.S. output will undermine OPEC’s efforts to clear a glut. Hedge funds scaled back bets on rising West Texas Intermediate crude by the most since August.
- Gold rises after two weeks of losses as investors weigh outlook for U.S. monetary policy, global equity markets and bond yields.
- Defense contractor General Dynamics Corp. agreed to buy CSRA Inc. for about $6.8 billion to expand in providing information-technology services to government agencies and the military. CSRA holders will receive $40.75 a share in cash, the companies said in astatement Monday. The price is 32 percent above where shares of Falls Church, Virginia-based CSRA closed on Friday. General Dynamics also will assume $2.8 billion of debt.
- Comcast Corp. is considering making another bid for much of21st Century Fox Inc., two months after Fox agreed to a deal with Walt Disney Co., according to a person familiar with the matter. Comcast had offered about $60 billion for many of Fox’s assets, including the movie-and-TV production house, a 39 percent stake in Sky Plc, Star India’s channels and a lineup of pay-TV channels such as FX and National Geographic, the person said. That’s higher than Disney’s $52 billion offer, which Fox accepted.
- Vingroup JSC, Vietnam’s biggest developer, clinched the country’s largest initial equity offering when it spun off its malls business last year. It may soon repeat the feat. Hanoi-based Vingroup is planning a spinoff of its luxury residential arm that could raise as much as $1 billion, people with knowledge of the matter said last week. The company’s Vinhomes unit, which offers serviced apartments and villas in the country’s biggest cities, could sell shares as soon as the first half of this year, according to the people, who asked not to be identified because the information is private.
- Heineken NV, the world’s second-largest brewer, wants to challenge leader Anheuser-Busch InBev NV in one of its key markets — and that’s going to cost the Dutch brewer some lost profit. The operating profit margin will expand about 25 basis points in 2018, below the target it had for past years, the brewer said Monday, warning of a headwind as it integrates a business in Brazil that it bought from rival Kirin for 2.2 billion real ($666 million). The stock fell 2.2 percent as of 11:31 a.m. in Amsterdam.
- Blackstone Group LP, which scored big four years ago when a company it owned sold New York’s Waldorf Astoria hotel for a record-setting price to a little-known Chinese insurer, may soon get a chance to own the iconic landmark again. The U.S. private equity firm has held initial discussions about bidding for Anbang Insurance Group Co. assets in a sale overseen by the Chinese government, people with knowledge of the matter said. The assets include the Waldorf as well as Strategic Hotels & Resorts Inc., which Blackstone sold to Anbang in 2016, said the people. Blackstone’s deliberations are at an early stage and the firm could refrain from bidding for any assets, one person said.
- German Chancellor Angela Merkel said she’s determined to serve another full term, rebuffing party critics who say she sold out to the Social Democrats to extend her 12 years in office. Faced with a backlash against last week’s coalition agreement and calls by some in her Christian Democratic Union to start thinking about a successor, Merkel defiantly brushed aside any suggestion of quick change in a prime-time ZDF television interview. She did say she planned to bring in some younger faces to her new cabinet.
- The U.S. is ready to engage in talks about North Korea’s nuclear program even as it maintains pressure on Kim Jong Un’s regime, Vice President Mike Pence said, signaling a shift in American policy. Pence and South Korea’s President Moon Jae-in agreed to pursue dialogue with North Korea during conversations at the Winter Olympics in Pyeongchang, the Washington Post reported. Pence dubbed the new strategy “maximum pressure and engagement at the same time.”
- Ford Motor Co. is spending $25 million more at its Kentucky factory to pump out more of the profitable big sport utility vehicles that are critical to funding its ambitious — and expensive –electric and self-driving vehicle plans. The investment will allow the second-largest U.S. automaker to boost production of the new Lincoln Navigator and Ford Expedition by 25 percent from what the company was planning last fall, when the redesigned models first hit showrooms.
- President Donald Trump will seek billions of dollars in new spending to build a border wall, improve veterans’ health care and combat opioid abuse in a budget proposal that’s likely to get little traction in a Republican Congress that has its own, very different spending priorities. At a time when the prospect of rising annual budget shortfalls has spooked financial markets, the White House said in a statement, without explanation, that its plan would cut the federal deficit by $3 trillion over 10 years and reduce debt as a percentage of gross domestic product. Yet, in a break from a longstanding Republican goal, the plan won’t balance the budget in 10 years, according to a person familiar with the proposal.
- Bitcoin extended a rebound on Monday as the regulatory concerns that have plagued digital currencies this year showed signs of subsiding. Bitcoin climbed 2.6 percent to $8,774 at 10:26 a.m. in London, bouncing back by almost 50 percent since dipping below $6,000 in intraday trading Feb. 6, according to composite Bloomberg pricing. Alternate coins Ripple, Ether and Litecoin advanced at least 3.5 percent.
- China has urged controlling investors in listed companies to boost their holdings and some mutual funds to limit equity selling this week, according to people familiar with the matter, as officials seek to stem the impact of the stock selloff. Over the weekend, the China Securities Regulatory Commission and other regulators sent informal directives to some major stockholders encouraging them to purchase more shares in the mainland-listed firms they invest in, according to the people, who asked not to be identified because the instructions were not made public. They called on some mutual funds to avoid being net sellers of equities as well.
- Barclays Plc’s operating unit faces a new criminal charge in relation to the lender’s controversial 12 billion-pound ($16.6 billion) fundraising at the height of the financial crisis a decade ago. The accusation of “unlawful financial assistance” against Barclays Bank Plc relates to a $3 billion loan Barclays secured for Qatar in November 2008, the lender said in a statement Monday. The Serious Fraud Office had already filed conspiracy to commit fraud and unlawful financial assistance charges against the holding company and four former executives, including ex-Chief Executive Officer John Varley, in June and a trial is scheduled for early 2019.
- India’s regulator unearthed about $3.6 billion of bad loans in the books of the country’s biggest bank, amplifying questions about distress in the financial sector given underreporting by some rivals as well. State Bank of India on Friday said an audit by the central bank showed soured debt was about 232 billion rupees ($3.6 billion) higher than what the state-run lender reported for the end of March 2017. The biggest private lender HDFC Bank Ltd. had a 20.5 billion rupee divergence, while ICICI Bank Ltd. said — without elaborating — that it isn’t required to make disclosures on the topic even as provisions for bad loans climbed. It had reported a divergence in the previous year.
- TDC A/S all but abandoned its offer to buy Modern Times Group AB’s Nordic entertainment assets for 19.55 billion kronor ($2.4 billion) after becoming a takeover target itself, bowing to shareholder demands to engage with potential suitors. The Danish telecom carrier’s board intends to pull its recommendation for the agreement with Sweden’s MTG should an offer emerge after an approach from a potential bidder, TDC said Monday in a statement. A spokeswoman for TDC declined to identify the bidder and referred to the statement. Swedish telecommunications operator Telia AB has had talks with TDC about a potential bid, Danish newspaper Dagens Industri reported.
- Investors actively abandoned the world’s biggest passive fund during the onset of market mayhem. The SPDR S&P 500 exchange-traded fund (ticker SPY) suffered a record $23.6 billion in outflows last week amid the worst momentum swing in history for the underlying U.S. equity benchmark.
- ArcelorMittal is competing with a consortium led by Russia’s VTB Group as bids come in for Essar Steel India Ltd., the largest distressed steelmaker being sold under the country’s insolvency process, people with knowledge of the matter said. ArcelorMittal, the world’s biggest producer of the alloy, is planning a joint offer with Nippon Steel & Sumitomo Metal Corp. by Monday’s deadline, according to the people. Essar Steel could fetch a valuation of at least $6 billion in a sale, the people said, asking not to be identified because the information is private.
*All sources from Bloomberg unless otherwise specified