By MacNicol & Associates In Morning Notes
February 7th, 2018
Daily Market Commentary
- Canadian stocks rose for the first time in seven trading days after a turbulent session that saw the benchmark tumble 2.5 percent at the open. The S&P/TSX Composite Index rose 29 points or 0.2 percent to 15,363.93, the first increase since Jan. 26. Cannabis stocks led the gains, with Canopy Growth Corp. jumping 19 percent and Aphria Inc. rising 18 percent.
- Bank of America Corp. is looking at packaging riskier Canadian mortgages into bonds, as rules designed to cool the housing market may spur demand for the securities. The bank has met with Canadian lenders to assess their interest in supplying mortgages for the bonds, which would be backed by home loans that don’t have government guarantees, according to a person familiar with the matter. It was also considering discussing the sale of the securities with U.S. investors, according to a government memo from June obtained through a records request.
- Prime Minister Justin Trudeau took the rare step of sending four cabinet members to Canada’s Senate, seeking to expedite the passage of a bill allowing recreational marijuana to be legalized later this year. In a hearing on the subject, the senators didn’t make any clear commitment to passing the legislation quickly, suggesting there could be a delay to the Liberal government’s initial July target date, though Trudeau has since said they’re aiming for summer. Conservative lawmakers including Larry Smith questioned the ministers on outstanding issues such as roadside testing by police, a low minimum age of use and public campaigns to deter unhealthy consumption.
- Ontario took little notice of the spike in volatility that has plagued investors worldwide, waltzing into debt markets on Tuesday with a near-record sale of bonds in both the Canadian and U.S. dollar. Canada’s most populous province sold C$1.5 billion ($1.2 billion) of new five-year benchmark bonds early on Tuesday, just as equity markets started recovering after the biggest-ever point plunge for the Dow Jones Industrial Average on Monday. It set the size at $3 billion on a concurrent global sale of three-year debt in USD shortly afterward.
- A brewing trade fight in western Canada has spilled over into booze, as oil-producing Alberta began blocking wine imports from British Columbia in retaliation for measures that may delay a key crude pipeline. Alberta Premier Rachel Notley announced the wine-import ban on Tuesday, saying the neighboring province’s recent proposal to restrict oil shipments violates Canadian law and is meant to “harass” Kinder Morgan Inc.’s Trans Mountain expansion. The project would carry more oil from landlocked Alberta to a port in British Columbia.
- European stocks climb after the biggest rout since the Brexit vote erased the 2018 advance for most benchmarks across the region. The Stoxx Europe 600 Index rises 0.7%, following overnight gains in U.S. equities.
- The wild market fluctuations of recent days are sending bets for equity correlations to levels not seen since November 2016. Out of 505 S&P 500 Index stocks, a record 503 fell on Monday as the gauge experienced its worst decline since August 2011.
- Asian stocks pared their morning rally — signaling that a rebound in equity markets across the region may be shaky — as markets from Hong Kong to South Korea erased earlier advances and Japanese stocks eked out slim gains at Wednesday’s close. The MSCI Asia Pacific Index rose 0.2 percent to 173.51 as of 4:30 p.m. in Hong Kong, rebounding from a 6.1 percent drop in the three days through Tuesday but paring back its earlier intraday gain of as much as 2.4 percent.
- Oil traded near the lowest closing price in two weeks as concerns about volatility in global markets offset an unexpected drop in U.S. inventories. Futures in New York dropped 0.2 percent after earlier gaining as much as 1.3 percent. American Petroleum Institute data Tuesday showed an unexpected decrease in U.S. stockpiles, while equity markets are clawing back on calls to “buy the dip” after extreme volatility earlier this week. Investors are watching if government inventory data also surprises with a decline when released on Wednesday.
- Gold fell as the rout in U.S. equities showed signs of easing, reducing demand for the commodity as a store of value. Other metals also declined, with palladium dropping below $1,000 an ounce for the first time since mid-December.
- NRG Energy Inc., the U.S. power generator that billionaire investor Paul Singer pressured to unload assets, agreed to sell its publicly traded wind and solar company to Global Infrastructure Partners for $1.38 billion in cash. The deal includes the sale of NRG’s ownership in its yieldco as well as its renewable energy development and operations platforms, NRG Yield Inc., Princeton, New Jersey-based NRG said in a statement Wednesday. The deal is expected to close in second half of 2018.
- The euro-area economy will expand faster than previously anticipated this year and next, the European Commission said, though it offered little comfort to the region’s central bank, saying inflation is expected to remain subdued. It sees expansion of 2.3 percent in 2018, up from 2.1 percent predicted in November and close to the decade-high rate reached in 2017. The 2019 forecast was upgraded to 2 percent, meaning the outlook is broadly in line with the most recent projections from the European Central Bank and International Monetary Fund.
- Citigroup Inc. said an Italian court rejected a 1.8 billion-euro ($2.2 billion) civil claim filed by Parmalat SpA against the bank over the food company’s collapse in 2003. The Milan court dismissed a lawsuit filed against the lender and a number of its former employees in June 2015, according to a statement by New York-based Citgroup and a copy of the ruling seen by Bloomberg. The court said the claim was a duplication of a case that was dismissed in New Jersey in 2008 and that it shouldn’t be allowed to proceed in Italy.
- The global market maelstrom spurred money managers to yank a record $17.4 billion from the mighty SPDR S&P 500 ETF over the past four trading sessions. The $8 billion removed on Tuesday alone was the third-largest daily withdrawal in the post-crisis era. The last time redemptions were close to matching this frenetic pace? In late 2007, when cracks in U.S. equities began to show before the global financial crisis unfolded.
- President Donald Trump’s U.S. tax cuts could do more harm than good in the longer term, according to the official forecast of the world’s largest trading bloc. The cuts will deliver a fiscal stimulus equal to about 1.5 percentage points of gross domestic product this year and next, “boosting economic growth further in the near term due to higher business investment, as well as household spending,” the European Commission said Wednesday. But the injection comes very late in the economic cycle, raising the risk of a pro-cyclical overdose, according to the staff of the EU’s executive arm in Brussels.
- Oil & Natural Gas Corp. plans to sell its holding in two state-run energy companies within a year to repay debt it raised to fund the purchase of the Indian government’s stake in Hindustan Petroleum Corp., according to people with knowledge of the matter. The state-run explorer may sell shares of Indian Oil Corp. and GAIL India Ltd.in multiple transactions on the open market through the year, the people said, asking not to be identified because the information isn’t public. ONGC has already received the approval of the government and is waiting for the right price to begin offloading the shares, they s
- The short-term spending bill passed by the House to avoid a government shutdown this Friday may get replaced with a longer-term budget plan that raises spending caps for defense and domestic programs if congressional leaders can wrap up a deal in the next two days. The House bill, passed 245-182 Tuesday, would keep the government open only until March 23 while funding the Pentagon through September. But Republican and Democratic leaders in both chambers are working on a two-year budget plan that — if that comes together — may be combined with other important but stalled measures, including lifting the federal debt ceiling and hurricane disaster aid.
- S&P/ASX 200 index rose 0.8 percent to close 5,876.80 in Sydney, snapping a two-day losing streak that wiped off about A$86 billion ($68 billion). BHP Billiton Ltd., the nation’s largest company by market capitalization, gave the gauge its biggest boost, while Rio Tinto Ltd., the world’s second-largest iron ore miner, also rallied ahead of its full-year earnings report. Shares of gold miners declined along with prices for the precious metal.
- He was the undisputed King of Las Vegas. His signature graced the side of the city’s fanciest casino and his gravelly voice greeted callers to the hotel. But now Wynn Resorts Ltd. will have to get used to life without Steve Wynn as CEO. The 76-year-old casino mogul, caught amid a deluge of sexual harassment allegations, stepped down Tuesday night as chairman and chief executive officer of the company he founded, which operates opulent resorts in Las Vegas and Macau and is building another near Boston.
- American Express Co. lost a fight against having EU card fee caps applied to its system in the U.K. after a ruling by the bloc’s highest court. EU curbs that target the likes of Visa Inc. and Mastercard Inc. also apply to American Express’s card system when there’s a co-branding partner or an agent involved, the EU Court of Justice said in a binding decision Wednesday in Luxembourg. AmEx is fighting the application to its card scheme of 2015 EU rules that cap the fees banks can collect on transactions by so-called four-party card schemes such as those by Visa and Mastercard. The EU measures followed years of complaints by retailers, who say unfair fees push up the final costs of goods and services, and amount to a hidden charge on consumers
- Saudi Arabian Oil Co. and Malaysia’s state-owned oil firm are close to raising an $8 billion loan to partly finance the construction of a planned refinery and a petrochemical complex in the Southeast Asian nation, people familiar with the matter said. The Middle Eastern oil giant, known as Aramco, and Petroliam Nasional Bhd.could sign the loan agreement as early as next month, said the people, who asked not to be identified because the information is private. BNP Paribas SA, HSBC Holdings Plc and Bank of Tokyo-Mitsubishi UFJ Ltd. are among lenders that have agreed to provide financing, the people said.
- German Chancellor Angela Merkel’s bloc has concluded a coalition agreement that hands a half-dozen ministries — including the key foreign and finance portfolios — to her Social Democratic allies, a move that will likely bolster the country’s commitment to greater European integration. Merkel’s Christian Democratic Union will get five ministries, including defense and economy, and the CDU’s Bavarian sister party will take three, according to a copy of the coalition agreement obtained by Bloomberg. German media reported that Social Democrat party leader Martin Schulz will serve as foreign minister, Hamburg Mayor Olaf Scholz will oversee finance, and Horst Seehofer — chief of the Bavarian Christian Social Union — will get interior.
- China’s foreign-exchange reserves rose for a 12th straight month, as the yuan strengthened and the economic outlook improved. The world’s largest foreign currency stockpile climbed $21.6 billion to $3.16 trillion in January, the People’s Bank of China said Wednesday, compared with the $3.17 trillion estimate in a Bloomberg survey.
- Bitcoin headed for a second day of gains as traders showed relief over comments Tuesday by U.S. securities regulators, who called for greater oversight of cryptocurrencies without proposing industry-killing measures. The largest digital token headed toward its first back-to-back increase in almost two weeks, rising 4.9 percent to $8,146 as of 10:41 a.m. in London, according to prices compiled by Bloomberg. Rival coins Ripple, Ethereum and Litecoin gained at least 2 percent, holding ground even as a Goldman Sachs Group Inc. report said most virtual currencies won’t survive a coming shake-out.
- China is studying the potential impact of trade measures imposed on soybeans imported from the U.S., including anti-dumping and anti-subsidy probes, according to people familiar with the matter. China’s Ministry of Commerce has been studying the possibility of taking measures since January, the people said, asking not to be identified because the information hasn’t been made public. The ministry held a meeting on Tuesday with some Chinese companies to get feedback about the potential impact, the people said. No conclusions were reached at the meeting, they said.
- Rio Tinto Group’s best profit in three years and a record dividend is yet another sign that miners are reaping the benefits of a surge in commodity prices. Yet the sheer size of Rio’s cash flow is starting to raise another question: how else will the world’s second-biggest mining company invest all its money? The company has so far focused on rewarding shareholders and on Wednesday, it promised a full-year dividend of $5.2 billion and an additional $1 billion stock buyback.
*All sources from Bloomberg unless otherwise specified