By MacNicol & Associates In Morning Notes
February 27th, 2018
Daily Market Commentary
- Canadian stocks closed at the highest since Feb. 1, the day before the recent rout began in earnest, as all but one sector gained. The S&P/TSX Composite Index added 76 points or 0.5 percent to 15,714.66, the benchmark’s second straight gain. Industrials rose 1.2 percent as Air Canada added 3.8 percent and Canadian National Railway Co. gained 2.2 percent.
- Bank of Nova Scotia’s focus on international banking is paying off. The Canadian lender, which has operations in about 50 countries, earned a record C$725 million ($571 million) from overseas businesses in the fiscal first quarter, up 14 percent from a year earlier. Those contributions, along with gains in Canadian banking, helped it post total profit that beat analysts estimates.
- Justin Trudeau’s third budget will likely hold few, if any, major changes as a slowing growth rate leaves little room for new measures. Trudeau’s finance chief Bill Morneau releases the budget Tuesday around 4 p.m. in Ottawa and has signaled he’ll continue to run deficits while lowering the ratio of federal debt to gross domestic product. The budget will focus largely on gender policy, such as boosting women’s workforce participation rates, and science development, the government has said. The budget, meanwhile, comes amid calls to cut business taxes to counter risks posed by U.S. President Donald Trump.
- Bank of Montreal reported first-quarter earnings which were ahead of market expectations, reflecting strong sales growth in Canada and the United States. BMO reported earnings per share, excluding one-off items of $2.12 per share. Analysts had on average forecast earnings of $2.06 per share. (Globe and Mail)
- European stocks and bonds slipped as investors await the first public comments from Federal Reserve Chairman Jerome Powell on Tuesday. Treasuries steadied and the dollar was little changed. Most industry groups in the Euro Stoxx 600 Index declined, led by real estate and telecoms companies.
- U.S. stock index futures steady as investors await the testimony of new Federal Reserve Chairman Jerome Powell before a House panel. Asian equities edged higher and European stocks dropped with Treasuries. Powell will discuss the Fed’s Semi-Annual Monetary Policy Report and the state of the economy.
- Asian shares advanced for a third day with small gains in most sectors, after U.S. equities climbed to a three-week high as the Treasury market stabilized. The MSCI Asia Pacific Index rose 0.2 percent to 179.65 as of 4:30 p.m. in Hong Kong, set for its highest close since February 2. Japan’s Topix gained 0.9 percent, while Hong Kong’s Hang Seng Index declined 0.7 percent.
- Oil traded near a three-week high after a supply disruption in Libya and as investors await U.S. inventory data. Futures in New York slid 0.3 percent after closing at the highest since Feb. 5 on Monday as crude exports from a key Libyan terminal were disrupted. The focus now shifts to U.S. stockpiles, which are forecast to have risen last week. While they increased in three of the past four weeks, the pace of gains slowed, allaying fears that American supply will undermine OPEC’s output curbs.
- Gold trades steady as investors await the first public comments from Federal Reserve Chairman Jerome Powell Tuesday for clues on monetary policy.
- The European Union will challenge Theresa May on Wednesday when it publishes a draft Brexit treaty that ignores some of the U.K. prime minister’s most important demands. The bloc is planning to set out in legal detail how it expects the U.K. to depart in just over one year’s time, and the terms of a transition period that will follow, according a person familiar with the matter. A German official added that the 27 members oppose an extension of the transitional period.
- Federal Reserve Chairman Jerome Powell’s embrace of his predecessor’s gradual approach to tightening monetary policy is about to be tested. Since Powell accepted President Donald Trump’s nomination almost four months ago, the near-term outlook has changed significantly. Financial volatility has awakened, and a booming stock market has shown it can also go down. A $1.5 trillion tax package is adding stimulus to the U.S. economy at a time of very low unemployment and solid growth, a trend that could red-line demand and kick up a central banker’s worst enemy — inflation. The government wants to test the limits of the world’s appetite for its debt, a boost in supply that’s putting upward pressure on market interest rates.
- China plans to reduce its annual budget-deficit target to just under 3 percent of total economic output, people familiar with the matter said. The target will be set at 2.9 percent, said one of the people, who asked not to be identified as the information isn’t public. The target, which was set at 3 percent in the past two years and hasn’t been cut since 2012, is subject to approval at the annual National People’s Congress opening on March 5.
- U.K. consumers will save as much as 1.3 billion pounds ($1.8 billion) a year through lower interest charges on credit-card debt under new rules, according to the country’s top market regulator. The U.K. Financial Conduct Authority said on Tuesday that the new rules will help customers who are in persistent debt or at the risk of financial difficulties. There are a total of 4 million accounts in continual debt, and firms “have few incentives to help these customers because they are profitable,” according to the regulator.
- Comcast jumped into the fray for Sky Plc, challenging Rupert Murdoch’s 21 Century Fox Inc. and Walt Disney Co. with a cash offer valuing the business at 22.1 billion pounds ($31 billion) and opening the possibility of a bidding contest for the U.K.’s biggest pay-TV company. After months spent scoping out Sky’s technology platform and content proposition of sports and entertainment across five countries, the owner of NBCUniversal offered 12.50 pounds per Sky share on Tuesday. That exceeds the 10.75 pounds offered by Fox for the 61 percent stake it doesn’t already own in the European broadcaster by about 16 percent.
- Euro-area companies tapped bank loans at the fastest pace in almost nine years the start of 2018, in the latest sign that the region’s economic growth is picking up. The European Central Bank’s measure of bank lending to non-financial businesses rose an annual 3.4 percent in January, the biggest gain since May 2009. Growth in loans to households, excluding mortgages, held at 2.9 percent, Tuesday’s report showed.
- The potential value of Siemens AG’s health-care unit in an initial public offering is slipping based on early investor feedback, according to people with knowledge of the matter. Buyers are indicating that the business should be valued in a range of about 26 billion euros ($32 billion) to 30 billion euros, the people said, asking not to be identified because the details aren’t public. Executives at Siemens Healthineers are still meeting investors to gauge their appetite ahead of disclosing later this week a price range for the equity offering, the people said, adding that no final decisions have been made on the valuation.
- Exxon Mobil Corp. shut its liquefied natural gas export plant in Papua New Guinea after an earthquake in the Pacific nation’s remote highlands cut supplies from the company’s upstream fields. The U.S. oil giant said Tuesday it closed both units at its PNG LNG facility near the nation’s capital, Port Moresby, which liquefies gas produced hundreds of kilometers inland near the epicenter of Monday’s magnitude 7.5 quake. Damaged phone networks and roads, as well as continued aftershocks, hampered efforts to assess the extent of the destruction, and officials in the impacted areas told The Associated Press they fear dozens may have been killed or injured.
- Brutal conditions for fixed-income traders last year hit the market’s dominant bank a bit harder than others. JPMorgan Chase & Co. lost some of its edge as the top firm that helps big investors bet on bonds, currencies and commodities — while second-place Citigroup Inc. inched closer and a few European rivals gained. The only bank that ceded more ground than JPMorgan was Goldman Sachs Group Inc., a smaller franchise where results got dragged down by losses in areas including gas and power. JPMorgan’s share of the $78 billion pool of revenue that banks generated handling fixed-income products fell by more than a percentage point, leaving it with 16.4 percent of the total, according to figures reported by 16 major firms in recent weeks. Citigroup added more than half a point for 15.5 percent. Europe’s Credit Suisse Group AG and Credit Agricole SA also improved.
- Provident Financial Plc settled of one of the regulatory probes that has hobbled the U.K. subprime lender since last summer, driving the shares up the most in almost 29 years. The company will also raise about 300 million pounds ($419 million) in a rights offering to shore up its balance sheet and pay a 172 million-pound settlement related to the Financial Conduct Authority’s investigation of its Vanquis Bank unit. A separate examination of its auto-loans arm, which commenced inDecember, could take up to two years to conclude, according to Chief Executive Officer Malcolm Le May.
- OPEC, Russia and other oil producers participating in output cuts have beaten market expectations in meeting their commitments, according to United Arab Emirates Energy Minister Suhail Al Mazrouei. The 24 countries that agreed to cut 1.8 million barrels of output a day beginning last year are committed to balancing the market, Al Mazrouei, who is also president of the Organization of Petroleum Exporting Countries, said Tuesday in Abu Dhabi. “I am optimistic that this year we will achieve market balance,” he said.
- GKN Plc sharpened its efforts to repel Britain’s biggest hostile takeover in a decade, setting a deadline of next summer for splitting its aerospace and automotive arms into separate companies. GKN, facing a 7.17 billion-pound ($10 billion) bid from Melrose Plc, is already in the process of separating the businesses operationally. They’ll be fully demerged by “the middle of 2019,” creating two listed companies with investment-grade balance sheets, it said in a statement Tuesday.
- Iran remains the major threat to U.S. interests and partnerships in the Middle East, Gen. Joseph Votel, head of U.S. Central Command, is poised to tell the House Armed Services Committee today, Roxana Tiron reports. Iran is working through proxies and friendly political allies in Iraq, Syria, and Lebanon “to establish an arc of influence, or ’Shia Crescent’ across the Middle East,” Votel, whose command has responsibility over operations in the region, said in prepared testimony obtained by Bloomberg
*All sources from Bloomberg unless otherwise specified