By MacNicol & Associates In Morning Notes
February 9th, 2018
Daily Market Commentary
- After a couple of relatively calm days, Canadian stocks resumed their streak of triple-digit declines as concerns about rising interest rates re-emerged. The S&P/TSX Composite Index fell 265 points or 1.7 percent to 15,065.61, the lowest in nearly five months. Every sector was in the red, with consumer discretionary posting the biggest decline, down 2.7 percent. Canada Goose Holdings Inc. tumbled 16 percent, the most ever, after earnings failed to meet investors’ lofty expectations.
- As two provinces spar over Kinder Morgan Inc.’s Trans Mountain pipeline, Justin Trudeau’s federal government spent Thursday repeatedly pledging to see it through. “We’re going to ensure that that pipeline gets built,” Trudeau said in San Francisco. Pressed on whether he’d intervene as British Columbia threatens to impede oil shipments, he said the province “has not actually taken any actions that we would be able to take them to court on.” His two top pipeline ministers echoed the sentiment. “This project is going through, it’s within federal jurisdiction,” Environment Minister Catherine McKenna said in Ottawa.
- The Toronto region posted its seventh year of record commercial-property sales and there’s room to rally as a buoyant economy leads to surging demand for everything from hotels to offices, according to Altus Group Ltd. Sales of investment properties Canada’s biggest city surged 38 percent to C$23.5 billion ($18.7 billion) in 2017, according to a report from Altus. A booming tech and financial sector helped send unemployment in the city to 4.3 percent in December from 5.5 percent a year ago even as it remained a magnet for immigrants.
- European stocks declined following a turbulent session in Asia that left a sea of red hours after U.S. equities on Thursday entered into a correction. Treasury yields rose and the dollar edged lower. The Stoxx Europe 600 Index is set for its worst week since 2016 as banks and financial-services stocks led most industry sectors lower.
- U.S. stock-index futures advanced, indicating a possible rebound for stocks at the end of a week that has seen key benchmarks enter a correction. Contracts on the S&P 500 Index expiring in March rose 0.7 percent as of 10:45 a.m. in London, while those on the Dow Jones Industrial Average were up 0.5 percent. Nasdaq 100 futures climbed 0.7 percent. A selloff that accelerated late Thursday sent the S&P 500 down 3.8 percent, taking its slide since a Jan. 26 record past 10 percent — the accepted definition of a correction. The Dow is also 10 percent below last month’s peak.
- Asia’s equity investors are staying stoic amid the face of the latest bout of global equity losses, sticking to their view that the region’s solid corporate earnings will eventually guide the market higher. Every single major Asian stock market is down after traders in the region woke up to U.S. stocks having entered a market correction. Chinese stocks — where bullish trades are falling apart — were the biggest losers Friday.
- Oil was headed for its worst week in almost a year as the global risk-asset rout troubled investors already concerned over growing U.S. supply. Futures traded in New York are on track to post a 7.4 percent slump this week as equities tumbled around the world. Adding to the alarm was data that showed U.S. oil production at a new high, and key technical indicators pointing to a further retreat in prices. West Texas Intermediate earlier slumped close to $60 a barrel, all but erasing this year’s gain.
- Gold poised for second weekly decline on speculation pace of interest-rate increases in U.S. and U.K. may quicken, while global equity sell-off continues, with Chinese stock market getting hit Friday.
- Broadcom Ltd. said its $121 billion acquisition proposal for Qualcomm Inc. is the “best and final” offer after the target’s board unanimously rejected the sweetened bid, likely leaving the future of the hostile takeover bid to be decided by shareholders next month. Broadcom Chief Executive Officer Hock Tan urged Qualcomm to meet this weekend to discuss the $82 a share offer and dangled the prospect of an $8 billion reverse termination fee in a letter to Paul Jacobs, chairman of the board. Tan said he was “astonished” the target wasn’t willing to meet until Tuesday, after the companies are scheduled to meet with proxy advisers Glass Lewis and ISS.
- Russia’s central bank reduced interest rates for the fourth meeting in a row, slowing the pace of easing as inflation expectations remain elevated even though consumer-price growth slipped to a record low. The one-week auction rate was lowered to 7.5 percent from 7.75 percent, following a cut of half a percentage point in December, according to a statement on Friday. Thirty-four of 40 economists surveyed by Bloomberg correctly forecast the move, with four seeing a 50 basis-point decrease and the rest predicting no change.
- Investors pulled the most money on record from equity funds last week as a spike in volatility sparked a selloff that has pushed many stockmarkets into corrections of more than 10 percent from their January highs. Global stock funds lost $30.6 billion in the week to Feb. 7, Bank of America Merrill Lynch said in a research note, citing EPFR Global fund flow data. U.S. equity funds saw redemptions of $33 billion, the most on record.
- After a wait of about a quarter of a century, the world’s biggest oil buyer is finally getting its own crude-futures contract. In a challenge to the world’s dollar-denominated oil benchmarks Brent and West Texas Intermediate, China will list local-currency crude futures in Shanghai on March 26, according to the nation’s securities regulator. The start of trading, open to foreigners, will mark the end of years of delays and setbacks since China’s first attempt at a domestic contract in 1993.
- Walmart Inc. is in discussions to pay several billion dollars for as much as 20 percent of India e-commerce leader Flipkart Online Services Pvt, according to a person familiar with the matter. The world’s biggest retailer would invest in Flipkart as part of a proposed deal that would increase the startup’s valuation as high as $20 billion, said the person, asking not to be identified because the matter is private. Flipkart’s valuation had been about $12 billion, according to researcher CB Insights. The talks are at an advanced stage, but terms could still change and the deal may not be finalized, said the person.
- Congress passed a two-year budget agreement early Friday that will boost federal spending by almost $300 billion and suspend the debt ceiling for a year, ending a brief partial government shutdown that began at midnight when lawmakers missed a funding deadline. The 240-186 House vote overcame opposition from many Democrats and a faction of GOP conservatives. The measure goes to President Donald Trump, who has promised to sign it, restoring funding before most government workers arrive at their jobs and financial markets open. The Senate passed the bill hours earlier, 71-28.
- The S&P/ASX 200 index fell 0.9 percent to close 5,838.00 in Sydney, extending its weekly slump to 4.6 percent. The benchmark index’s worst weekly loss since January 2016 wiped off about A$80 billion ($62 billion) as U.S. equities fell to two-month lows amid ongoing concern that rising interest rates will crimp economic growth.
- While the world’s equity markets are suffering, the oil companies are even more miserable due to crumbling crude prices and some disappointing earnings. The 83-member MSCI World Energy Sector Index is having its worst week in two years with a 7.2 percent decline — a sharper drop than the wider market and wiping off $193 billion of value. Exxon Mobil Corp. has slumped 15 percent since the day before it announced profit and production that missed estimates, and BP Plc and Total SA weren’t spared from the rout even after they beat analysts’ forecasts.
- HNA Group Co., the debt-laden Chinese conglomerate, received some much-needed support from a state-run bank as the company continues to face challenges repaying its borrowings. China Citic Bank Corp. will offer HNA a 20 billion yuan ($3.2 billion) credit line, the lender said in a statement Friday. Citic Bank President Sun Deshunand HNA Chief Executive Officer Adam Tan attended the signing ceremony, according to the statement.
- China’s ability to export inflation to the world appears to be waning, right at a time when investors are worried that global prices are taking off amid faster economic growth. Factory prices, which feed through into the prices export customers pay, are continuing to soften, suggesting the world’s biggest trading nation won’t be passing on much more by way of inflation in the near term. The producer price index rose 4.3 percent in January from a year earlier, its third month of slowing, and consumer prices climbed 1.5 percent.
- The U.K. is leading the way into an online-shopping future, and that has the country’s traditional brick-and-mortar retailers fighting for their lives. With 18 percent of retail sales taking place online in Britain, the stakes are even higher than in the U.S., where the comparable figure is 12 percent — and where department-store owner Bon-Ton Stores Inc. has just become the latest victim of Amazon.com Inc.
- Eurostar International Ltd. will link London with the Netherlands by rail starting April 4 in the biggest expansion of the Channel Tunnel express operator’s network since it commenced operations in 1994. Trains from the U.K. capital will take slightly over three hours to reach Rotterdam and a further 40 minutes before arriving in Amsterdam, Eurostar said Friday. The company has been working on the launch since 2013.
- Vingroup JSC, Vietnam’s biggest property company by market value, is planning a spinoff of its luxury residential arm that could raise as much as $1 billion, people with knowledge of the matter said. The company’s Vinhomes unit, which offers serviced apartments and villas to residents in the country’s biggest cities, could sell shares as soon as the first half of this year, according to the people. Hanoi-based Vingroup is inviting banks to pitch for roles on the proposed offering, the people said, asking not to be identified because the information is private.
- Boeing Co. has held preliminary talks with aircraft-parts supplier Woodward Inc. as it scouts potential targets to help build a new division into a $50 billion behemoth, said people familiar with the talks. No deal is imminent from the discussions nor is there any guarantee Boeing would reach a final agreement with Woodward, said the people, who asked not to be identified because the talks are confidential. Woodward disputed reports, which first appeared in the Wall Street Journal, that it’s in takeover negotiations with Boeing.
- China’s banking regulator has asked lenders to wind down unlicensed operations in regions outside their home base, people familiar with the matter said, the latest attempt to contain risks in the financial system. The China Banking Regulatory Commission’s order last month was aimed at curbing smaller lenders’ interbank businesses and forcing them to better serve the local economy, the people said, asking not to be identified as the information hasn’t been made public. The move could close at least 100 interbank operation centers for city and rural commercial banks in Shanghai that lacked proper licenses, said the people.
- Italian voters, who are being wooed by campaign promises before next month’s general election, got the first of a series of economic snapshots showing the state of the country’s recovery, and the news was better than expected. December industrial output rose the most in almost two years, the national statistics agency said Friday. In the last month of 2017 Italy’s production increased 1.6 percent or twice the median forecast in a Bloomberg poll of 23 analysts. That was the biggest monthly rise since January 2016.
- U.K. utilities may have to delay or give up on building powerstations as new generators won only a fraction of the capacity offered in a tender to provide backup electricity. The auction process, set up to encourage new installations, only saw 1.5 percent of the total going to proposed plants. The lack of new projects could put pressure on Britain’s power supply at an uncertain time for the nation’s energy policy as it negotiates its exit from the European Union.
- One of the world’s largest cryptocurrency exchanges missed several deadlines it set to reopen after a system upgrade, spurring an online backlash from users who got cut off from trading and withdrawals for 31 hours. Binance, which often tops rankings of the most active digital-currency exchanges globally, first announced a problem at around 10 a.m. on Thursday in Hong Kong, saying that a planned one-hour maintenance would take 12 hours longer than expected and that trading would be halted. It has since missed two targets for re-opening. The exchange said in its latest tweet, at 5:14 p.m. Hong Kong time, that trading would begin in an hour and that it would provide a discount on fees through Feb. 24.
- L’Oreal SA Chief Executive Officer Jean-Paul Agon said the French cosmetics company is ready to buy Nestle SA’s 23 percent stake as some investors pressure the Swiss food maker to offload it. L’Oreal has the resources to repurchase the holding, worth about 22 billion euros ($27 billion), Agon said at a presentation Friday. The cosmetics company probably would sell its holding in French drugmaker Sanofi to help finance any such deal, he said in a Bloomberg Television interview.
*All sources from Bloomberg unless otherwise specified