By MacNicol & Associates In Morning Notes
January 10th, 2018
Daily Market Commentary
- Canadian stocks eked out a small increase, the first in three trading days, as gains in real estate and consumer staples barely offset a decline in materials shares. The S&P/TSX Composite Index added two points or less than 0.1 percent to 16,319.24. Real estate shares rose 0.7 percent as Pure Industrial REIT jumped 20 percent to a record high. Blackstone Property Partners is buying Pure Industrial for C$2.48 billion.
- The world’s largest development banks were the first to open books on Canadian dollar debt transactions this year, offering more diversification to a market longing for new supply. The World Bank priced C$1 billion ($802 million) of five-year global sustainable development bonds on Tuesday at two basis points above midswaps, with demand exceeding C$1.2 billion, according to information from people familiar with the matter. The European Investment Bank will price its offering of at least C$500 million of same-maturity climate awareness bonds on Wednesday.
- Canada’s financial watchdog plans to revise capital requirements for the nation’s banks, drafting rules that are more risk-sensitive and stricter than those set by global regulators. The Office of the Superintendent of Financial Institutions’ Carolyn Rogers announced the changes Tuesday a speech at a bank conference hosted by RBC Capital Markets in Toronto. She said Canadian banks would have until the fourth quarter to conform to a risk model that’s tougher than the capital standards announced in December by the Basel Committee on Banking Supervision.
- European stocks drop for the first time in six sessions, with losses led by one of 2017’s biggest winners — miners. The Stoxx Europe 600 Index falls 0.2%, dropping from its highest level since August 2015. Utilities and real estate shares are also among the worst performers, tracking bonds lower. Banks bucked the trend, rising for a seventh day, as investors looked to buy sectors set to benefit from rising interest rates.
- The global stock rally paused on Wednesday as investors digested a surge in bond yields, the flip side to synchronous global growth and potentially rising inflation. The dollar retreated against all G-10 peers and crude jumped.
- Asian stocks were mixed, stalling their climb to a new record, as the best start to a year for the region’s equities in over a decade spurred some investors to lock in gains. Technology shares fell while oil producers rose as crude traded near its highest level since 2014. About seven shares fell for every six that rose in the MSCI Asia Pacific Index, which was little changed at 180.62 as of 4:54 p.m. in Hong Kong after closing at a record high Tuesday.
- Oil extended gains from the highest close in more than three years as U.S. industry data signaled crude stockpiles dropped an eighth week. Futures climbed as much as 1 percent in New York after rising 2.5 percent the previous two sessions. U.S. crude inventories fell by 11.2 million barrels last week, the American Petroleum Institute was said to report on Tuesday. If the draw is replicated in Energy Information Administration data Wednesday, it would be the biggest decline for this time of the year since 1999.
- Gold drops for a second day after yields on 10-year U.S. Treasuries climb to the highest level in almost 10 months, weighing on demand for the non-interest bearing asset.
- The clock may be ticking for iron ore’s bull run. While the rally may last for a couple more months as China eases winter curbs on steel output, aiding demand, there’s a slew of warnings that over 2018 as a whole rising mine supply will drag prices back down, possibly as low as $50 a ton.
- As the European Central Bank enters 2018, the debate over its stimulus plans is being dominated by policy makers warning against keeping policy ultra-loose for too long. With the euro-area economy expanding solidly after three years of negative interest rates and quantitative easing, hawks such as Bundesbank PresidentJens Weidmann have stepped up calls for a definite end-date to bond purchases. Even Executive Board member Benoit Coeure, a leading proponent of QE when the region faced deflation, now sees a “reasonable chance” the latest extension of the program to September will be the last.
- Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. China holds the world’s largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. It isn’t clear whether the recommendations of the officials have been adopted.
- Sweden’s Stenbeck family is merging phone and TV businesses in its portfolio, a 26.8 billion kronor ($3.3 billion) bid designed to challenge Sweden’s largest telecom provider, Telia AB. Tele2 AB agreed to buy Com Hem Holding AB for 146 kronor a share in cash and stock, the companies said Wednesday — a 12 percent premium to the latest closing price. The Stenbecks’ investment company Kinnevik AB, already the largest owner of both companies, will have 27.3 percent of the merged entity and control 41.9 percent of the votes.
- For all the hand-wringing about a bond bear market finally being upon us, yields are likely to rise at a much slower pace than some bond bears envisage. It’s hard to imagine we’re looking at a drop of 20% or more in bond prices any time soon. Yields are edging higher and justifiably so given the Fed is in tightening mode and most central banks in the DM world have ended their easing bias. But steady on, doom-mongers — globally, nearly $8 trillion of fixed-income securities are still have yields below zero. While that is less that the record high of $10 trillion in September last year, it’s still roughly the size of national output of Japan and Germany combined.
- Congressional Republicans got the green light from President Donald Trump to negotiate an immigration deal with Democrats, potentially clearing a stalemate that’s stalled action on multiple issues, including funding to keep the government from shutting down next week. During an unusual public meeting with bipartisan members of Congress at the White House Tuesday, Trump offered a broad outline for an agreement while also giving cover for any Republicans worried about the political cost of giving in on protection for some undocumented immigrants.
- The U.S. may challenge Saudi Arabia and Russia in the next two years in the race to become the world’s largest oil producer. U.S. output will rise to 10 million barrels a day as soon as next month and top 11 million in November 2019, according to government forecasts Tuesday. That compares with almost 11 million barrels of Russian production in 2017 and Bloomberg estimates of just below 10 million from Saudi Arabia in December. Both countries have pledged to limit output this year to curb supply and boost prices, though the kingdom has indicated it could pump another 2 million.
- Nestle SA, the world’s largest food company, is emerging as the lead bidder to acquire Merck KGaA’s consumer-health business for as much as $5 billion after some of the other potential suitors dropped out, according to people familiar with the matter. Nestle has submitted the highest offer and the German company is likely to select a winner during the first quarter, the people said, asking not to be identified because the discussions are confidential. Companies such as Perrigo Co. and private equity firms Bain Capital and Cinven have decided to drop out of the sale process, the people said.
- The European Union markets regulator announced a surprise delay until March of its plan to curtail the trading of potentially hundreds of stocks in dark pools under MiFID II, dealing a blow to a key pillar of the law. The European Securities and Markets Authority late on Tuesday blamedincomplete data it received from trading venues for delaying its list of stocks that would have been caught by MiFID’s dark pool caps. The partial data would have resulted in what it called “a biased picture” of the markets had the agency reported as expected on Jan. 9.
- Indian Prime Minister Narendra Modi eased restrictions on foreign direct investment across several sectors, including allowing overseas airlines to invest in state carrier Air India Ltd., in a bid to revive growth in Asia’s third largest economy. Foreign carriers can buy up to 49 percent in the loss-making national airline, the government said in a statement. In a move aimed at further improving ease of doing business, the cabinet also allowed single-brand retailers to start local operations without federal approval and foreigners can own up to 100 percent in real estate brokerages.
- Argentina is in the running along with Chile to be the site of a new data center for Amazon.com Inc. in South America, according to people familiar with the matter, a sign of President Mauricio Macri’s success in bringing the nation back into the global economy. Macri met with Elaine Feeney, Amazon’s vice president for global infrastructure expansion, in New York late last year. Chile held several meetings with Amazon up through mid-2017, and President Michelle Bachelet visited Amazon’s headquarters during a trip to the U.S. in June. Amazon is still deciding how to proceed and could ultimately end up with sites in both locations, another person said.
- Catalonia’s two main pro-independence parties agreed to support ousted regional president Carles Puigdemont’s bid for a second term in office to mount a new challenge to Spanish Prime Minister Mariano Rajoy. Puigdemont fled to the Belgian capital in October as Rajoy fired his government and dissolved Catalonia’s parliament after it illegally attempted to declare independence. After the separatists again won a slim majority in regional elections last month, he is exploring ways to take office without returning to Spain, where he faces arrest as a judge explores whether the independence push amounted to a “rebellion.”
- The world’s largest automotive alliance will invest as much as$1 billion to fund mobility startups over the next five years as it looks to make inroads with new technology at a time of rapid upheaval for the transportation sector. Carmaking partners Renault SA, Nissan Motor Co. and Mitsubishi Motors Corp.will invest as much as $200 million during the venture capital fund’s first year, the alliance said in a statement Tuesday. The fund, called Alliance Ventures, will finance new developments in electrification, autonomy, connectivity and artificial intelligence.
- Iberdrola SA signaled it may boost its 25 billion-euro ($30 billion) capital spending program for a second consecutive year to ensure the Spanish utility keeps pace with increasing electrification of everything from transport to heating. Chief Executive Officer Ignacio Galan outlined 6 billion euros to 7 billion euros a year of investments through 2020 on renewable energy, distribution grids and power-storage technology. He said he isn’t considering major acquisitions.
- European natural gas traders stand to lose about $1 billion in sales to Ukraine this year. Companies from Eni SpA to Uniper SE will see combined gas shipments to the east European nation fall by about that amount after a Stockholm court ordered Ukraine to resume some imports from Russia after a break of more than two years. European Union companies first started selling gas to Ukraine in 2013, with the new market helping offset a slump in domestic demand at the time.
- Japan’s negative interest rates are pushing the nation’s largest life insurer into emerging-market debt as the global hunt for yield prompts conservative money managers to take on more risk. Japan Post Insurance Co., which has total assets of about 78.6 trillion yen ($697 billion), plans to start buying sovereign and investment-grade corporate bonds in developing economies as early as this quarter, managing director Takayuki Haruna said in an interview. Initial investments will be “experimental” and small. The company — which sells policies through more than 20,000 post offices and other outlets around Japan — is diversifyingbeyond domestic securities.
*All sources from Bloomberg unless otherwise specified