By MacNicol & Associates In Morning Notes
February 16th, 2018
Daily Market Commentary
- Canadian stocks closed at the highest in nearly two weeks and have retraced about one-third of the benchmark’s recent decline, boosted by strong earnings and deal activity. The S&P/TSX Composite Index added 79 points or 0.5 percent to 15,407.66. Real estate shares were the biggest gainers, rising 2 percent as Canadian Real Estate Investment Trust jumped 16 percent, the most ever. Choice Properties REIT is buying Canadian REIT for C$3.93 billion.
- Cenovus Energy Inc. Chief Executive Officer Alex Pourbaix said the oil-sands producer will consider selling more of its holdings in Alberta’s Deep Basin — but not exiting the play entirely — to speed up efforts to repair its balance sheet. Pourbaix, who took the reins in November, has been cutting jobs, trimming expenses and working to sell more assets to pay down debt the company took on to fund its $13.3 billion acquisition of ConocoPhillips’ oil-sands and Deep Basin holdings last year. Investors have panned the deal, which was struck by Pourbaix’s predecessor, saying it saddled Cenovus with too much leverage at a time of uncertain oil prices and stuck it with Deep Basin drilling operations that fell outside of its expertise in the oil sands.
- Air Canada’s fourth-quarter revenue and adjusted earnings came in ahead of analyst estimates, as the Montreal-based airline posted record-high annual revenue for 2017. Its adjusted net income was $61 million, or 22 cents per share for the quarter – ahead of analyst estimates of 14 cents per share, according to Thomson Reuters data.
- European stocks emerging from the shadow of a global selloff rise further on Friday, extending their biggest weekly gain in more than a year. The Stoxx Europe 600 Index rises 0.6%, with energy shares leading a broad rebound. Vopak jumps after saying it has the potential to “significantly improve” its 2019 Ebitda. Vivendi slides after posting earnings and confirming trends previously reported in January.
- While stocks in the U.S. capped their best five-day run since 2011, the dollar continued to tumble. The Bloomberg Dollar Spot Index fell to a three-year low on a closing basis, further weakening the currency’s performance versus its Group-of-10 peers, with the yen leading the gains year-to-date.
- Oil was headed for a weekly increase as a weaker dollar boosted the allure of commodities priced in the U.S. currency. Futures in New York were little changed Friday and poised for a 3.7 percent weekly gain after the greenback slumped to a three-year low. That’s erased almost half of last week’s losses, when a global equity rout spread to other risk assets. A rebound in stocks from the U.S. to Asia is also boosting confidence the markets are stabilizing.
- Gold gains a fifth day, heading for biggest weekly advance since April 2016 as the dollar weakens and U.S. inflation creeps up.
- Get ready for what could be another record year for corporate borrowing. The U.S. tax overhaul package is freeing up cash for companies and the Federal Reserve is hiking rates, but chief financial officers are still eager to borrow, UBS strategists wrote this week. The Swiss bank and Wells Fargo both expect businesses to sell as much U.S. investment-grade and junk bond debt this year as they did in 2017, if not more, in part to fund an expected uptick in mergers and acquisitions.
- Deere & Co., the world’s largest farm machine maker, raised its full-year sales forecast, and there’s reason to believe that good news will keep coming. After a prolonged slump for crop prices that slashed farmer income, fundamentals are starting to rebound, according to Farha Aslam, an analyst at Stephens Inc. There’s a chorus echoing that view. Bunge Ltd. Chief Executive Officer Soren Schroder said this week that there are early signs of a recovery for the markets.
- State-controlled VTB Group is buying 29% of Magnit PJSC from billionaire Sergey Galitskiy, who said investors don’t trust his vision for Russia’s second-largest food retailer after its share price plunged in the past year. Galitskiy will quit as chief executive officer after selling 138 billion rubles ($2.5 billion) of shares to VTB, Magnit said in a regulatory filing. At 4,660.91 rubles a share, that implies a discount of almost 4 percent to the previous close. Magnit dropped as much as 7 percent in Moscow trading on Friday, to the lowest since 2012.
- Credit Agricole SA is seeking to sell about 6 billion euros ($7.5 billion) of Italian non-performing loans bought from other institutions a decade or more ago, according to people with knowledge of the matter. The French bank is trying to offload its holdings in four different bad-loan securitizations, along with the Luxembourg-based entity that issued them, said the people, who asked not be identified because the matter is private. The vehicles were created between 2006 and 2008 when Credit Agricole’s investment-banking unit purchased and securitized the loans, they said.
- Uber Technologies Inc. is launching a range of measures, including 24-hour telephone support hotlines and better contact with local police, in a bid to appease London’s regulator ahead of a court battle over its license to operate in the city. The ride-hailing company will now report “serious incidents” that occur during a passenger’s journey to the police, rather than expecting users to make contact. It will also share license details of drivers with riders, and allow those drivers to post their live location to family or friends.
- Edwin Wong, the chief investment officer of Hong Kong-headquartered SSG Capital Management and an ex-Lehman Brothers Holdings Inc. banker, sees a multitude of opportunities in India as the nation pushes ahead with a bankruptcy system overhaul. There was further evidence of that this week, with the Reserve Bank of India introducing a time line for the country’s banks to recast bad loans and also scrapping previous methods. Prime Minister Narendra Modi’s government has been trying to clean up $210 billion of bad loans on banks’ balance sheets and that’s attracting global funds.
- Linde AG and Praxair Inc. face an extended review of their $52 billion merger after European Union antitrust regulators cited price and supply concerns with a deal that would leave it facing only two main rivals. The European Commission said the transaction would reduce the number of major providers in Europe for gases such as oxygen and helium to just three. The increased market power of the new entity could lead to price hikes and there are risks of coordination between the remaining market players, the commission said in a statement that set a July 4 deadline to rule on the deal.
- Roche Holding AG will buy Flatiron Health Inc. and its cancer-focused medical records technology for $1.9 billion, as drugmakers increasingly mine data to develop new oncology treatments. The Swiss oncology giant already owns 12.6 percent of closely held Flatiron, which is also funded by Google parent Alphabet Inc., the companies said Thursday. The company was founded by Nat Turner andZach Weinberg, who sold an ad tech business to Google almost a decade ago.
- European Central Bank policy maker Benoit Coeure signaled that officials are close to starting talks on altering their policy language as they prepare for the eventual end of bond purchases. “Our communication on monetary policy will change” Coeure told reporters on Friday in Skopje, Macedonia. “Certainly the expectation is that this will be discussed in early 2018.” The ECB is trying to find the right time to signal that the euro area’s broadest-ever economic expansion warrants halting asset-buying and preparing for higher interest rates. At the same time, still-weak inflation and recent volatility in global markets is making officials cautious of even holding formal talks on the matter.
- Acknowledging that ties with Turkey are at a “crisis point,” U.S. Secretary of State Rex Tillerson pledged cooperation with President Recep Tayyip Erdogan’s government but also issued new warnings over the erosion of democratic norms and the country’s plan to sign a defense deal with Russia. Underscoring the challenges they face, the two sides were unable to resolve any of those challenges even after Tillerson met Erdogan for more than three hours on Thursday and later dispatched top aides to Turkey’s foreign ministry to work through the night toward some sort of agreement.
- Quarterly operating profit at Pacific Investment Management Co., the bond manager owned by German insurer Allianz SE, reached the highest since co-founder Bill Gross quit the firm. The company had 546 million euros ($684 million) of operating profit in the last three months of 2017, the insurer said Friday. That’s the most since the third quarter of 2014, when Gross joined what is now Janus Henderson Group Plc after record redemptions from his Pimco Total Return Fund and returns that trailed competitors.
- Dangote Cement Plc, owned by Africa’s richest man, has revived plans for a share sale in London that could raise about $1 billion, according to people familiar with the matter. The Nigerian company, controlled by Aliko Dangote, has approached investment bankers to discuss a potential U.K. listing, said the people, who asked not to be named as the talks aren’t public. Once banks have been appointed, it will probably take at least five months to complete the process, one of the people said. The cement maker is also considering issuing a debut Eurobond, according to two different people familiar with the matter.
- Kraft Heinz Co.’s sales and profit fell short of Wall Street expectations last quarter, adding pressure on the food giant to fuel growth with a large acquisition. Earnings amounted to 90 cents a share in the fourth quarter, excluding some items, the company said on Friday. That was a nickel below analysts’ estimates. Though sales grew for the second straight quarter — reversing a string of declines — they still missed projections.
- Coca-Cola Co.’s push to diversify its drinks and spin off company-owned bottlers is bearing fruit. The company posted sales that beat analysts’ estimates in the fourth quarter, helped by its growing beverage portfolio and reformulations. Profit also topped projections. Shares gained as much as 3.1 percent to $46.15 in early trading in New York. The stock had fallen 2.4 percent so far this year through Thursday’s close.
- Walmart Inc. is introducing low-cost clothing brands for women, kids and plus-size customers, aiming to lure shoppers as Amazon.com Inc. gobbles up more apparel sales. The store brands include Time and Tru in ladieswear — which will replace the jettisoned DanskinNow label — along with Terra & Sky in plus-size apparel and Wonder Nation for kids, according to a company presentation to suppliers obtained by Bloomberg News. The George apparel brand, which Walmart brought over from its British unit Asda, will be refocused for men only. The new brands will replace older ones such as Faded Glory, White Stag and Just My Size.
- Avis Budget Group Inc.’s top shareholder kicked off a proxy battle with the rental-car company’s board, citing its failure to meet financial targets and prepare the company for the transformation of the auto industry. SRS Investment Management LLC nominated three new directors and said Chairman Ronald Nelson, a former Avis chief executive officer, should be replaced. The New York-based hedge fund, which owns almost 15 percent of Avis’s shares, criticized the board for comprising mostly current and past Avis executives and long-tenured directors.
*All sources from Bloomberg unless otherwise specified