By MacNicol & Associates In Morning Notes
February 15th, 2018
Daily Market Commentary
- A shortage of rail cars in Canada is leaving grain and oil shipments stranded on the Prairies, sending crude prices plummeting and leaving farmers in a cash crunch. The nation’s biggest railways haven’t been able to deliver enough cars after harsh winter conditions and as a sudden boom in energy production sparked a swell of demand. Some farmers have been waiting for months to deliver wheat and canola to elevators before they can get paid. The squeeze also means that crude supplies are piling up in Alberta, pushing prices to the biggest discount relative to New York futures in more than four years.
- Encana Corp., the Canadian oil and gas producer that’s a significant player in Texas’s Permian Basin, said it would buy back shares after returning to profit in 2017. “Demonstrating its focus on shareholder returns, Encana plans to spend up to $400 million to repurchase up to 35 million common shares over the next 12 months,” the Calgary-based company said Thursday. It reported net income of $827 million for 2017, compared with a year-earlier loss of $944 million.
- Bombardier Inc. is generating cash at the healthiest clip in seven years. Free cash flow jumped 76 percent to $872 million during the fourth quarter, Canada’s biggest aerospace company said in a statement Thursday as it reported earnings. That exceeded analysts’ expectations for the closely watched figure.
- Choice Properties Real Estate Investment Trust has signed a deal to acquire Canadian Real Estate Investment Trust (CREIT) for $3.9 billion in cash and stock. The combination of Choice Properties, which counts Loblaw as its principal tenant and largest unitholder, and CREIT will create a company with a diversified portfolio of 752 properties.
- Barrick Gold Corp., the world’s biggest gold producer, is about to get smaller. The Toronto-based miner is predicting its eighth straight decline in annual production as it takes less gold out of the ground at its core mines. The company expects to produce 300,000 fewer ounces in 2018 than it had previously forecast. It now projects total production will be 4.5 million to 5 million ounces this year, compared with a previous forecast of 4.8 million to 5.3 million ounces. Total gold output in 2017 was 5.32 million ounces.
- European stocks advance as traders assess earnings from heavyweights including Nestle and Airbus while eyeing rising bond yields that may be approaching a critical level for the direction of equity markets. The Stoxx Europe 600 Index climbs 0.4%, heading for a weekly gain of ~2%. Airbus advances 8.9% in the best performance among single stocks on the gauge after the planemaker struck an optimistic tone in its outlook for 2018, promising earnings growth of 20%.
- U.S. stocks extended a rebound while Treasury yields rose to a four-year high as economic data supported expectations that the Federal Reserve will maintain a gradual approach to raising interest rates. The S&P 500 Index climbed for a fourth day as banks and durable-goods makers rallied, returning the gauge to a gain for the year after it fell more than 10 percent from a January peak. Gold rallied and the dollar slumped as the 10-year yield topped 2.9 percent.
- Asian equities rose for a fourth-straight day, erasing their loss for the year, following an advance in U.S. stocks as investors shrugged off higher-than-expected inflation. The MSCI Asia Pacific Index rose 1.5 percent to 176.11 as of 4:18 p.m. in Hong Kong. Financial stocks including China Construction Bank Corp. and Mitsubishi UFJ Financial Group Inc. led a broad-based rally.
- Oil in New York traded near a one-week high as improving sentiment in equities spilled over into crude and American stockpiles increased slower than forecast. Futures rose 0.5 percent after gaining 2.4 percent on Wednesday. Global stocks recovered from last week’s risk-asset rout, while a weaker dollar burnished the appeal of commodities priced in the U.S. currency. Adding to the crude market’s optimism is government data showing American stockpiles grew 1.84 million barrels last week, the slowest expansion in three weeks.
- Gold trades near highest level in almost three weeks as dollar extends slide on concern over U.S. fiscal and current-account deficits, and investors weigh impact of rising inflation and disappointing retail sales.
- Call it a quality performance. Iron ore futures are headed for the highest close in more than five months amid speculation that sustained demand for higher-grade ore will help to support prices, with investors laying bets on the outlook even as markets in top user China are closed for a break.
- Lloyds Banking Group Plc terminated the arrangement with Standard Life Aberdeen Plc in which Britain’s largest active money manager oversees 109 billion pounds ($153 billion) of assets for the bank. Standard Life Aberdeen shares fell the most since the day after the Brexit vote.
- Warren Buffett took a bet on a troubled maker of generic drugs, buying a stake in Teva Pharmaceutical Industries Ltd. as he seeks to cut soaring U.S. health-care costs. Shares of the Israeli drugmaker surged the most in two months after Buffett’s Berkshire Hathaway Inc. disclosed it had bought about $350 million worth of shares.
- Airbus SE said U.S. authorities have asked the airplane maker for information relating to a British and French bribery probe to assess whether any of the alleged misconduct could fall within U.S. jurisdiction. Airbus said it is “cooperating with the U.S. authorities in close coordination” with the U.K.’s Serious Fraud Office and France’s Parquet National Financier as investigators from those countries pursue an investigation into bribery in the company’s passenger jet business, according to an earnings report, published Thursday.
- The London office building that’s home to hedge funds including Rokos Capital Management and Viking Global Investors is being offered for sale for about 300 million pounds ($422 million), according to two people with knowledge of the matter. Plaza Global, a venture between Quantum Global Investment Management and LaSalle Investment Management, has appointed broker Jones Lang LaSalle Inc. to market 23 Savile Row in London’s Mayfair district, the people said, asking not to be identified because the plan is private. The building, which commands some of the highest rents in London, was last sold for 218 million pounds in 2012.
- OPEC will soon discuss with Russia a new way to measure oil stockpiles, with the Saudi Energy Minister saying that finding reliable inventory data has been a challenge to more than a year of oil-output cuts meant to curb the global glut. Oil producers involved in the supply reductions, which have helped lift crude prices to three-year highs, will discuss which inventory levels to consider when they meet in April, Saudi Arabia Energy Minister Khalid Al-Falih told reporters in Riyadh on Wednesday. More coordination is needed to assess inventories, Russian Energy Minister Alexander Novak said at the same meeting.
- For the VIX futures curve, time has healed all wounds. The enormous spread between front and second-month VIX futures contracts, which are tied to the Cboe Volatility Index, was a barometer of just how roiled the market was during the recent downturn. It also caused severe pain (and in one case, death) for some products linked to the VIX.
- Russia and Saudi Arabia are seeking ways to amplify the success they’ve had working together to manage the oil market by reaching new energy deals, including one on liquefied natural gas. Signing a memorandum, Russian gas producer Novatek PJSC and Saudi oil giant Aramco agreed to consider teaming up on Novatek’s Arctic LNG-2 project, Russian Energy Minister Alexander Novak told reporters in Sochi on Thursday. Specifics may be prepared ahead of the St. Petersburg International Economic Forum in May, he said.
- Authorities in Italy raided the headquarters of the country’s biggest phone carriers as part of an antitrust probe over pricing, according to people familiar with the matter. Financial police and officials from the competition regulator are searching offices in Rome and Milan of Telecom Italia SpA, Vodafone Group Plc’s local unit, Swisscom AG’s Fastweb, Wind Tre and industry lobby association Asstel, said the people, who asked not to be named as the investigations aren’t public.
- Japanese Prime Minister Shinzo Abe may submit his picks for Bank of Japan governor and the two deputies to parliament on Friday, starting the process of appointing central bank’s leadership. The nominations are likely to come tomorrow, according to an official in parliament who asked that their name not be used, citing protocol. If the nominations happen tomorrow, they would be announced sometime after 11 a.m. local time.
- Wells Fargo & Co. agreed to sell its Puerto Rico banking subsidiary to Popular Inc. for about $1.7 billion as the lender retreats from auto lending. The all-cash deal will include about $1.5 billion in retail auto loans and $340 million in commercial loans from Wells Fargo’s Reliable Financial Services unit, San Juan-based Popular said Wednesday in a statement. Popular will also acquire other assets and assume some of Reliable’s liabilities.
- It’s been more than three months since the first of more than a dozen Venezuelan bonds was declared in default, and the arrears keep stacking up. Wall Street investors reluctant to give up hope they’ll eventually be paid are in limbo after the country and its state oil company busted through grace periods on about $1.7 billion of debt payments, rating firms declared many securities in default and swaps that provide insurance against non-payment were triggered.
- JD.com Inc. will raise about $2.5 billion by selling a stake in its logistics business to investors including Hillhouse Capital and Tencent Holdings Ltd. The agreement includes backing from China Merchants Group, Sequoia China and China Life, the Beijing-based e-commerce operator said in a statement Wednesday. JD.com will retain an 81 percent stake after the deal is completed this quarter, which suggests a valuation on the business of more than $10 billion.
- America’s fiscal largesse and the specter of wider current-account shortfalls are fueling a renewed wave of dollar bashing. Congress’s bipartisan vote last week to increase spending by nearly $300 billion over the next two years comes on the heels of a $1.5 trillion tax cut that could boost domestic demand and the country’s trade gap. Strategists are taking heed, zeroing in on America’s twin deficits as a likely catalyst of continued greenback weakness following February’s brief respite.
- Bitcoin edged lower rather than break above $10,000, triggering a selloff in other large digital coins. The largest cryptocurrency was up 3.1 percent to $9,573 as of 11:43 a.m. in London, after halting a march higher when it came within 0.3 percent of the resistance level. Ripple erased its increase, while Ethereum and Litecoin retreated from advances of as much as 15 percent.
- Deutsche Bank’s planned initial public offering of its asset management unit remains on track for the first quarter despite the recent selloff in stock markets, according to people familiar with the matter. The bank is confident it can sell a minority stake in the unit, to be renamed DWS, before April as long as markets don’t continue to deteriorate, the people said, asking not to be identified discussing non-public information. The IPO will be timed so it doesn’t coincide with the other big German IPO expected before the end of the quarter, the flotation of Siemens AG’s health care division Healthineers, one person said.
- Yakult Honsha Co. shares fell the most in 19 months after Danone, the world’s largest yogurt maker, announced plans to sell about $1.8 billion of the Japanese company’s stock amid pressure from an activist investor to boost returns. Yakult will offer as many as 24.6 million shares held by Danone, including over-allotment, in a secondary sale, the Japanese company said. The shares are valued at 195.3 billion yen ($1.8 billion) based on Yakult’s closing price on Wednesday. While the move will cut the French company’s stake to about 7 percent, from the 21 percent it has held for more than a decade, it will remain Yakult’s largest shareholder.
- AT&T Inc. is pursuing an unprecedented strategy of injecting politics into the fight to salvage its planned takeover of Time Warner Inc. by threatening to call the head of the U.S. Justice Department’s antitrust division to testify about his decision to sue to block the merger. AT&T believes Trump and the head of the division, who previously worked at the White House and was appointed by Trump, discussed the transaction before the government sued to block the deal in November, according to a person familiar with the matter who wasn’t authorized to discuss the information publicly.
*All sources from Bloomberg unless otherwise specified