By MacNicol & Associates In Morning Notes
January 18th, 2018
Daily Market Commentary
- Power Corp. of Canada, a holding company controlled by Canada’s billionaire Desmarais family, is moving into private credit with the launch of its first fund targeting middle-market lending. Sagard Holdings ULC, a subsidiary of Power Corp., raised an initial $260 million of capital from Healthcare of Ontario Pension Plan, BRK Capital, Walter Financial, a large Canadian corporate pension plan and from its own capital, according to a statement on Thursday. The Sagard Credit Partners LP fund aims to raise a total of $500 million by the end of the year to lend to family- and founder-owned companies and smaller public firms.
- The U.S. convenience store industry is facing an inconvenient truth: Americans are changing the way they shop for snacks and drinks. The nation’s 154,500 convenience stores are getting squeezed by competition from all sides. Fast-food restaurants and supermarkets are slugging it out in price wars, while dollar stores keep popping up everywhere. And Amazon.com Inc. offers quick delivery for basic items. That’s putting pressure on gas-station retail chains to merge. The $550 billion convenience store industry last year recorded its weakest merchandise sales growth since 2013, and businesses are rushing to improve loyalty programs, offer better food and let customers order online. Some are even testing delivery. In a sign of the changing times, Circle K owner Alimentation Couche-Tard Inc., a Canadian company with 7,700 stores in the U.S., hired its first-ever chief marketing officer.
- European equities advance amid optimism for global growth after China’s economy sealed its first full-year acceleration since 2010. The Stoxx 600 climbs 0.2%, with all but three industry groups in the green. Technology shares rise the most, up for a third session, after TSMC posted forecast-beating earnings, Apple said it plans $30 billion in U.S. capital expenditures and Goldman Sachs says the sector’s outperformance this year will be driven by exposure to structural growth and company-specific product cycles.
- U.S. stock-index futures point to a little-changed open amid efforts to pass a one-month government spending bill to avoid a partial shutdown of the federal government. Investors await housing starts, which probably declined in December as frigid winter weather impeded work. IBM, Morgan Stanley and American Express are scheduled to publish earnings.
- Asian stocks outside Japan rose, with Hong Kong equities closing at a record, after China’s economy sealed its first acceleration since 2010, underpinning global growth. Japanese shares fell. The MSCI Asia Pacific ex-Japan Index advanced 0.2 percent to 595.60 as of 5:01 p.m. in Hong Kong as advances by technology shares offset losses from energy and material companies.
- Oil held near a three-year high ahead of U.S. inventory data that’s expected to show a ninth week of crude-stockpile declines. Futures were little changed in New York after rising 0.4 percent on Wednesday. The American Petroleum Institute estimates stocks fell by 5.12 million barrels last week, a steeper drop than the 3.15 million forecast in a Bloomberg survey before government data due Thursday. Output from OPEC, which releases monthly data later on Thursday, expanded last month, according to people familiar with the figures.
- Gold’s breakneck rally eased this week, but tailwinds in both physical and paper markets suggest it’s got room to run. Chinese New Year buying and option prices suggest the stars are aligning for the metal to extend its 6.5 percent gain in the past six weeks.
- Iron ore’s set to slump back toward $50 a metric ton as mills’ profitability in China nosedives, according to Liberum Capital Ltd., which says the premium benchmark material commands over lower grades that’s become a prominent feature of the market won’t be sustained.
- Wyndham Worldwide Corp. agreed to buy La Quinta Holdings Inc.’s hotel franchise and management business for $1.95 billion in cash. Wyndham offered $8.40 for each share and said it will repay about $715 million of La Quinta’s debt, according to a statement Thursday. Before the deal takes place, La Quinta will spin off its property assets into CorePoint Lodging, a publicly traded real estate investment trust.
- OPEC increased its forecast for rival oil-supply growth for a second month running after a recovery in prices sent Brent crude to $70 a barrel. OPEC’s output cuts — now entering a second year — have been successful in eroding bloated stockpiles and lifting prices to a three-year high. Yet the rally has prompted concern that competitors in the U.S. will be emboldened to expand production.
- Royal Dutch Shell Plc and BP Plc agreed to annual deals to buy Libyan crude, underscoring how the North African country’s recovering production and improving security are enticing some of the world’s largest oil companies. Shell’s deal with Libya’s National Oil Corp. was the first of its kind since 2013, and Europe’s biggest oil company will load its first cargo under the contract within days, according to people familiar with the matter, who asked not to be identified because they’re not authorized to talk to the media. BP, which didn’t have a term deal in 2017, also reached an agreement for this year, the people said.
- Airbus SE won a program-saving order for its A380 superjumbo that could be worth $16 billion at list prices and add at least a decade to the model’s lifespan. Persian Gulf carrier Emirates, already the biggest A380 customer, signed an outline agreement for 20 of the double-deckers with an option to buy 16 more, the Dubai-based company said Thursday, handing Airbus its first orders for the flagship model in more than two years.
- China’s economy sealed its first full-year acceleration since2010, underpinning global growth and giving authorities more room to purge excessive borrowing. A reflation of the industrial sector and a global upswing that’s boosting exports are providing room for President Xi Jinping to tackle debt risks, one of Beijing’s top goals for the coming three years. With consumer inflation still contained and the currency firm, the central bank has been able to tighten the screws in some areas without benchmark interest rate increases, though a minority of economists are beginning to anticipate such a move.
- The roller coaster January for cryptocurrency investors eased for a few hours on Thursday as Bitcoin held steady after roaring back from its first plunge below $10,000 since December. The largest digital currency climbed 2.1 percent to $11,620 at 11:34 a.m. in London, Bloomberg composite pricing showed. It held fairly steady for much of the Asia trading day as investors took a breath following a frantic 24 hours in which the digital coin swung through a trading range of $2,600. Rivalsethereum and litecoin were little changed, while Ripple jumped 12 percent.
- Temporary government funding runs out Jan. 19 and the House and Senate will have to pass a temporary extension to avoid a partial shutdown of the federal government. Democrats are demanding that spending legislation include a provision permanently shielding about 690,000 undocumented immigrants brought to the U.S. as children from deportation.
- China’s central bank tightened restrictions on certain bank accounts often used for payments on platforms such as Alipay and Tenpay, its latest efforts to reduce risks in the digital payments industry, people with knowledge of the matter said. The rules issued this week impose stricter limits on the amounts an individual can pay through newly opened ‘Type 3’ accounts, which are commonly linked to online payment platforms and used for retail spending, the people said, asking not to be identified because they’re not authorized to speak publicly.
- Toshiba Corp. has agreed to sell claims in its Westinghouse U.S. nuclear unit to bolster its capital by 410 billion yen ($3.68 billion) by March, helping it to erase negative shareholder equity and avoid being delisted. The Tokyo-based company plans to complete the sale of the claims to an entity controlled by the Baupost Group LLC this month, it said in a statement Thursday. The deal will generate after-tax profit of 170 billion yen. Toshiba shares rose as much as 2.9 percent in Tokyo.
- U.K. Prime Minister Theresa May has provisionally agreed to pay about 40 billion pounds ($55 billion) as part of the country’s exit from the European Union. Some are up in arms about the tab, but analysis by Bloomberg Economics shows it’s a price worth accepting if it helps the U.K. win favor with EU negotiators and secure a trade deal that’s beneficial to the economy. In fact, it would pay for itself in less than three years by limiting damage to output, even if Britain only secures what BE describes as a “relatively unambitious” agreement.
- Malaysia’s Permodalan Nasional Bhd will buy a stake in London’s Battersea Power Station building where Apple Inc. plans to occupy a new U.K. headquarters. The sovereign wealth fund will own the building with the Employees Provident Fund in a deal which values the power station building at about 1.6 billion pounds ($2.2 billion), Battersea Power Station Development Co. said in a statement Thursday. Talks on the deal are still at an early stage. The building will also contain luxury apartments, leisure facilities and stores.
- BP Plc agreed to help increase crude production at northern Iraq’s Kirkuk fields as the government pushes to restore output and exporting capacity after recapturing the oil-rich region from semi-autonomous Kurdish forces in October. Iraqi and BP officials signed an agreement in Kirkuk city on Thursday to study ways of boosting capacity at the fields to 700,000 to 750,000 barrels a day. The deposits, which include the country’s oldest field, currently can pump about 450,000 barrels a day.
- Saudi Arabian Oil Co. is ready for its initial public offering in the second half, with the government yet to decide where to list the shares, Chief Executive Officer Amin Nasser said. The kingdom will decide where the stock will be traded, not the company, Nasser said Thursday at Aramco headquarters in Dhahran, in eastern Saudi Arabia. One option being considered is selling the shares locally and then overseas, he said. There is no short list of possible exchanges and talks are ongoing to decide on bank roles, he said.
- Barclays Plc is eliminating as many as 100 senior staff at its investment bank as the unit’s chief, Tim Throsby, overhauls the underperforming division, according to people familiar with the decision. The cutbacks will fall mainly at the managing director and director levels and are evenly split between Europe and the U.S., said the people, who asked not to be identified because the process hasn’t been finalized. Employees in the banking division, which raises debt and advises companies on mergers and strategy, are being informed this week, with reductions to the markets side of the unit, which houses fixed-income and equity traders, to start next week, they said.
*All sources from Bloomberg unless otherwise specified