January 12th, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks rose the most in a week, propelled by higher commodity prices that offset declining pot shares and consumer staples. The S&P/TSX Composite Index added 39 points or 0.2 percent to 16,286.94. Energy stocks rose 1 percent as crude prices rose to the highest since late 2014, while the materials index added 0.8 percent.
• Go ahead, just try to rent an apartment in Toronto. The feat is getting even harder, with supply tight and prices showing no sign of retreating. The vacancy rate in the fourth quarter was among the lowest ever, at 0.3 percent, according to Urbanation Inc. The average monthly rent for a condominium rose by 9.1 percent to C$2,166 (US$1,730) from a year earlier. That’s the second-largest increase since 2010, when Urbanation began tracking the number, after a record year-over-year jump of 12 percent in the third quarter. Downtown rents surged even more, sending apartment hunters out to the suburbs.
• A Canadian firm is launching an exchange-traded fund that gives investors exposure to the U.S. recreational marijuana market — a sector that’s been largely avoided by other ETFs because of legal uncertainties. Horizons ETFs Management Canada Inc. has filed a preliminary prospectus to launch the Junior Marijuana Growers Index ETF, which includes companies with operations in the U.S. This is in contrast to Horizons’s existing Marijuana Life Sciences Index ETF, which avoids U.S. growers and focuses on larger companies with ancillary exposure like Scotts Miracle-Gro Co.

 

 

World Headlines

• Stoxx 600 pares a gain of as much as 0.2% to trade little changed after the euro jumps to its highest level in 3 years following a breakthrough in German coalition negotiations.
• Asian stocks were mixed as materials and energy companies rose, while consumer equities declined. Hong Kong shares extended a record-breaking winning streak while Japanese stocks slid for a second day as the yen continued to strengthen against the dollar. About seven stocks fell for every five that gained in the MSCI Asia Pacific Index, which rose 0.3 percent to 180.87 as of 4:46 p.m.
• Oil steadied in London after briefly climbing above $70 a barrel for the first time in three years as a global surplus recedes. Brent futures were little changed, having added 2.3 percent this week in a fourth weekly increase. The longest sequence of declines in U.S. crude stockpiles during winter in a decade — a result of rising demand and OPEC’s output cuts — was a key driver of the rally.
• Gold heads for longest stretch of weekly gains in nine months as euro rallies while Germany attempts to form a government.
• Steel prices in China are coming back down to Earth, fast. Reinforcement bar, a benchmark product that’s used in construction, sank to the lowest level since August after a five-week retreat as demand eases, mills go on pushing out supplies and nationwide stockpiles expand. The spot price of rebar fell every day this week, losing 5.7 percent to 4,123 yuan a metric ton on Friday, according to Antaike Information Development Co. The material has tumbled 18 percent since peaking at a multiyear high in early December. At the same time, stockpiles of rebar — which reached a nadir early last month — have started to rebound, rising for four straight weeks.
• BlackRock Inc. crossed the $6 trillion asset mark and is already seeing benefits from the new U.S. tax law. The world’s largest asset manager hit $6.3 trillion in the fourth quarter and said net income was bolstered by $1.2 billion related to the tax legislation as well as flows into exchange-traded funds last year. The New York-based company’s Chief Executive Officer Laurence D. Fink said in a statement Friday that BlackRock had the strongest net flows in its history last year — $367 billion.
• The U.S. tax overhaul cost JPMorgan Chase & Co. $2.4 billion last year. Consider it a down payment on a more profitable future. The bank said that while it took accounting charges in the fourth quarter tied mostly to levies on foreign earnings required under the new law, its effective tax rate will drop this year to 19 percent from 32 percent. That means that if JPMorgan generates the same pretax profit this year as it did in 2017, earnings will balloon by more than $3.5 billion.
• Chancellor Angela Merkel reached a preliminary accord to end Germany’s political gridlock, tying her effort to unlock a fourth term to a vote by the reluctant Social Democrats later this month. After a marathon of more than 24 hours of talks, leaders of Merkel’s Christian Democratic Union, her Bavarian sister party and the Social Democrats hammered out an agreement that outlines a possible alliance.
• Yapi Kredi Bankasi AS, the Turkish lender controlled by UniCredit SpA and Koc Holding AS, is proceeding with plans to raise about $1 billion to bolster capital levels, according to people familiar with the matter. The two largest shareholders would contribute a combined 80 percent of the funding in proportion to their ownership in the bank, with the sale of new shares covering the rest, the people said, asking not to be named because the plan isn’t public. The lender is in talks with Bank of America Merrill Lynch and Citigroup Inc. about managing the rights issue, the people said.
• Abu Dhabi sovereign fund Mubadala Investment Co. is exploring options for its stake in RHB Bank Bhd., Malaysia’s fourth-biggest lender, including a possible sale, people with knowledge of the matter said. Mubadala has held informal discussions with potential advisers to seek suggestions on its 17.8 percent holding in RHB Bank, according to the people. The fund sees its RHB Bank holding as non-core and is considering options for the stake as part of a broader review of its portfolio, one of the people said, asking not to be identified because the information is private. Mubadala’s stake is worth about 3.66 billion ringgit ($920 million) based on Thursday’s closing price.
• President Donald Trump’s nominee to lead the Federal Reserve is being asked to give assurance he would shield the central bank from any White House effort to influence its oversight of Deutsche Bank AG, a troubled lender that has been drawn into investigations of Russian meddling in U.S. politics. Senate Banking Committee member Chris Van Hollen made the request in a letter to Fed Governor Jerome Powell ahead of the panel’s scheduled vote on Powell’s nomination to succeed Janet Yellen. The Maryland Democrat said his concerns stem from Trump’s “significant liabilities” with the bank at a time when the Fed could be weighing supervisory and enforcement actions against the Frankfurt-based company.
• Maoyan Weying, China’s biggest online movie ticketing platform, is planning a Hong Kong initial public offering that could raise about $1 billion, people with knowledge of the matter said. The company, which also helped fund the latest “Transformers” movie, has held initial discussions with potential advisers about the share sale, according to one of the people. It is targeting a listing later this year, the people said, asking not to be identified because the information is private.
• Next year, General Motors Co. will no longer need an engineer in the front seat babysitting the robot brain that controls its self-driving Chevrolet Bolt. The steering wheel and pedals will be gone, giving total control to the machine. When GM starts testing its autonomous electric sedan in San Francisco ride-sharing fleets, it’ll likely be the first production-ready car on the roads without the tools to let a human assume control. The announcement Friday is the first sign from a major carmaker that engineers have enough confidence in self-driving cars to let them truly go it alone.
• President Donald Trump has ditched plans to visit London next month to open a new U.S. embassy, in a decision that poses a new test for the so-called “special relationship” with the U.K. “Reason I canceled my trip to London is that I am not a big fan of the Obama administration having sold perhaps the best located and finest embassy in London for ‘peanuts,’ only to build a new one in an off location for $1.2 billion,” Trump said on Twitter. “Bad deal. Wanted me to cut ribbon — NO!”
• Facebook Inc. said it’s making major changes to its flagship social network, shifting users’ news feeds back toward posts from friends and family and away from businesses and media outlets — a transition that is likely to mean people spend less time on the site. In a post Thursday, Chief Executive Officer Mark Zuckerberg said community feedback has shown that public content has been “crowding out the personal moments that lead us to connect more with each other.” The goal of the product teams will be to help Facebook’s more than 2 billion monthly users find content that will lead to more meaningful social interactions, he said.
• Recent revelations that millions of Intel Corp.’s chips carry a security flaw is putting a deeper strain on the company’s decades-long partnership with Microsoft Corp. Dubbed Wintel, the two technology giants worked hand in hand for much of the PC era, with Microsoft building the Windows operating system and Intel making the chips to run it. But as mobile technology began to replace PCs’ prowess, both companies sought new partners and the alliance started to fray.
• GKN Plc rejected an unsolicited approach from Melrose Industries Plc and said it will split itself in two rather than accept a 7 billion-pound ($9.5 billion) takeover offer that it says undervalues the U.K. maker of aerospace and automotive components. GKN shares surged as much as 28 percent to an all-time high after the Redditch, England-based company, a key supplier to Airbus SE and Boeing Co., said Friday that it turned down the 405 pence-a-share offer from Melrose, a U.K. investment firm that specializes in turnarounds. Melrose said separately that it remains interested in a buyout.
• At least a dozen Chinese listed companies have issued statements this week playing down links to blockchain technology amid signs regulators are trying to limit the kind of speculative surges seen in other markets. Hangzhou Sunyard System Engineering Co. said Thursday it’s not involved in blockchain platforms, despite owning a stake in a blockchain company. Shenzhen Forms Syntron Information Co. said Wednesday a blockchain project it’s undertaking has “very little contribution” to its earnings and there’s “great uncertainty” on its future impact. Both companies said exchange operators had asked them to remind investors of risks.
• India’s proposal to curb drug prices by stripping generic medicines of their brand names has stalled after the plan faced pushback from the country’s pharmaceutical companies, according to people with knowledge of the discussions. The Draft Pharmaceutical Policy circulated last summer by the Department of Pharmaceuticals has made no progress since opposition emerged from the industry and among some government agencies, according to the people, who asked not to be identified as the discussions are not public. While the department has been ordered to redraft the policy, a new one is not expected through the rest of the current government’s term ending in 2019, one of the people said.

 

 

*All sources from Bloomberg unless otherwise specified