By MacNicol & Associates In Morning Notes
February 5th, 2018
Daily Market Commentary
- Canadian stocks posted their worst week since January 2016, falling to the lowest in nearly five months amid a broader global rout. The S&P/TSX Composite Index tumbled 255 points or 1.6 percent to 15,606.03. The benchmark fell 3.9 percent on the week as a combination of rising bond yields and worsening sentiment weighed on stocks.
- Fairfax to buy services business carried on by Carillion in Canada relating to facilities management of airports, commercial and retail properties, defense facilities, select healthcare facilities and on behalf of oil, gas and mining clients, including under the Outland brand.
- European stocks drop, heading for their biggest six-day slide since June 2016, following Friday’s rout in U.S. equities amid concerns about rising bond yields. The Stoxx Europe 600 slides 1.2%, breaking below its 200-day moving average.
- A regular feature of U.S. stock market downdrafts over the last few years has been stabilization over the weekend after traders got a chance to breathe. That took longer to occur this time. Futures on the Dow Jones Industrial Average sank as much as 1.1 percent on Monday, after signs of wage inflation and surging bond yields sent major U.S. benchmarks to their worst week in two years.
- Oil’s rally is unraveling on fears over a rise in U.S. production and as a deepening slump in equities undermined market support. Benchmark Brent fell to its lowest level since Jan. 8 as Baker Hughes data showed American explorers last week raised the number of rigs drilling for crude to the highest in almost six months. A global slump in equities deepened on Monday, removing another pillar of support for the oil market.
- Gold steady after posting the biggest one-day loss in almost two months on Friday as investors weigh outlook for U.S. interest rates, Treasury yields and appetite for risk assets amid global equity sell-off.
- Broadcom Ltd. has raised its bid for Qualcomm Inc. to about $121 billion, in an attempt to force what could be the largest-ever technology deal. The new offer of $82 a Qualcomm share will be Broadcom’s final offer, according to a statement Monday. The deal would take the form of $60 in cash and the remainder in Broadcom shares.
- It’s been a long time since an incoming Federal Reserve leader had it this good. Jerome Powell will be sworn in Monday morning as the 16th chairman of the Fed, on the day after his 65th birthday. He’s inheriting a U.S. economy in its third-longest expansion on record, with unemployment and inflation near historically low levels.
- China will maintain a mid-2019 deadline for implementing strict new regulations for the country’s asset management industry, resisting some banks’ requests for a loosening of the rules and more time to comply, according to people familiar with the matter. The final version of rules governing asset management products will retain the June 30, 2019 deadline for compliance that was contained in the draft version circulated in November, said the people, asking not to be identified as they are not authorized to speak publicly. The regulators also won’t relent on their plan to stop financial institutions guaranteeing AMP returns when the new rules come into force, according to the people.
- Britain’s services growth weakened more than expected at the start of the year, casting a cloud over the economy following some recent positive figures. IHS Markit’s Purchasing Managers Index fell to 53 in January from 54.2 in December. That’s the lowest since September 2016 and well below the 54.1 economists had forecast.
- Boeing and Airbus have never had it so good in Asia. The rapid growth of mainland Chinese carriers and the entry of many budget operators has meant billions of dollars in orders for the aircraft makers. At the Singapore Airshow this week, top officials from Airbus SE Chief Executive Officer Tom Enders to Boeing Co.’s vice president of marketing Randy Tinseth are due to outline their plans to capture that boom. Asia Pacific is likely to have 3.5 billion passengers by 2036, adding more than double the forecast for North America and Europe combined, according to estimates by the International Air Transport Association.
- GlaxoSmithKline Plc and Reckitt Benckiser Group Plc are the only companies to have submitted non-binding bids for Pfizer Inc.’s consumer-health business after other potential suitors bowed out, according to people with knowledge of the matter. Pfizer plans to open a data room for Glaxo and Reckitt to start due diligence on the assets before submitting final offers in the next few weeks, the people said, asking not to be identified because the matter is private. French drugmaker Sanofi, Switzerland’s Nestle SA and U.S. health care-giant Johnson & Johnson were among companies to consider and then decide against bidding for the business, the people said.
- Alibaba Group Holding Ltd. has agreed to buy a stake in Dalian Wanda Group Co.’s cinema operator as billionaire Wang Jianlin’s real estate-to-entertainment conglomerate turns to another Chinese tech giant and a government-backed company for investments totaling about 7.8 billion yuan ($1.2 billion).
- Hong Kong’s stock market now has a sizable bulwark against global bearishness: Chinese buyers from north of the border. After the benchmark Hang Seng Index plunged as much as 2.7 percent on Monday in the wake of a U.S. slump, mainland investors purchased a net 10.2 billion yuan ($1.6 billion) of the city’s shares through exchange links with Shanghai and Shenzhen.
- China started an anti-subsidy and anti-dumping investigation into grain sorghum imported from the U.S., further fueling trade tensions between the world’s two biggest economies. The Asian nation’s Commerce Ministry said it has initial evidence that the U.S. government subsidizes grain sorghum, according to a statement released Sunday. It will probe import damage to the domestic industry from January 2013 though October 2017, and aims to complete the investigation by Feb. 4, 2019, with the possibility for a six-month extension.
- Activist investor Elliott Management Corp. has called on BHP Billiton Ltd. to immediately review its dual structure after commissioning research that argues reorganizing as a single company in Australia would add more than $22 billion in value to the miner’s shareholders. Creating a unified company, headquartered and incorporated in Australia, with a primary listing in that country and additional listings elsewhere, would cost $391 million, according to the report by FTI Consulting Inc. BHP is the world’s biggest miner and currently operates as two entities based in Melbourne and London.
- Wells Fargo shares tumbled 9.5 percent in pre-market trading after the Fed banned the bank from growing, just as other banks seem poised to benefit from an expanding economy, more lending and lower taxes. Analysts at firms including Citi, JPMorgan, Morgan Stanley and RBC downgraded their ratings, using language like “Fed doesn’t pull any punches,” Fed “pounces,” and noting Wells Fargo “will have to be defensive.”
- Nissan Motor Co. intends to spend 1 trillion yen ($9 billion) over five years in China as it vies to become the largest global electrified vehicle maker in the country. The Japanese carmaker aims to raise annual deliveries by 1 million units by 2022, with much of the growth coming from electrified models, Jun Seki, head of Nissan’s China operations, told reporters in Beijing Monday.
- China is seeking to cap coal prices near the highest in more than five years, according to people with knowledge of the plan, the latest regulatory effort to manage energy resources as surging heating demand and a winter freeze empty utilities’ stockpiles. The National Development & Reform Commission, the top economic planner, is meeting Monday with miners, utilities and port officials to discuss capping the price of coal shipped to coastal power generators at 750 yuan ($119) a ton, said the people, asking not to be identified as the information isn’t public. The NDRC will also direct buyers to report if sellers seek a higher price, they said.
- Ryanair Holdings Plc is girding for battle with its pilots and competitors alike. The budget carrier is committed to a price war in the crucial summer period, in an attack on the likes of EasyJet Plc, which has said easing competition will help mitigate higher fuel charges. At the same time, Chief Executive Officer Michael O’Leary warned Monday he’s prepared to endure pilot walkouts rather than bend to union demands that would threaten the low-cost giant’s business model.
- China has a new strategy to avert sharp market declines — and it looks like it may be working. The China Securities Regulatory Commission last week urged brokerages to ask investors with stock pledges to add to their collateral when share prices drop below critical levels, instead of closing out the positions, according to people familiar with the matter. Shares on the mainland — where state intervention in stocks is relatively commonplace — rose on Monday after their worst week since 2016, the only major Asian market to post gains amid a broad selloff.
- Indonesia’s economy grew slightly better than expected last quarter, supported by a pick-up in exports while consumer spending continued to disappoint. Stocks and the currency pared losses. Despite an aggressive run of monetary policy easing, consumer spending growth was little changed at about 5 percent last quarter. And while the economy’s expansion was the fastest since 2016, risks are rising, including higher interest rates in the U.S., which could worsen financial market volatility.
- Japan’s Mitsui & Co Ltd. is set to win control of oil and gas explorer AWE Ltd. after the Sydney-based company recommended shareholders accept the A$602 million ($477 million) takeover offer over rival bids.
- Singtel to increase its stake in Bharti Telecom by up to 1.7% for ~S$555.6m by subscribing to new shares under a proposed preferential allotment, according to filing.
*All sources from Bloomberg unless otherwise specified