By MacNicol & Associates In Morning Notes
January 2nd, 2018
Daily Market Commentary
- Investors counting on a rebound in Canadian stocks following a lackluster 2017 are likely to be disappointed. Canada’s equity benchmark will rise about 4.4 percent in 2018, a return that would lag last year’s 6 percent gain that trailed most global indexes, strategists say. The S&P/TSX Composite Index will end the year at 16,928, compared with 2017’s closing mark of 16,209, according to the average of nine estimates compiled by Bloomberg. This compares with an average year-end forecast of 2,875 for the S&P 500 Index in the U.S, a projected gain of 7.5 percent.
- Justin Trudeau’s marijuana czar is warning that policy makers may need to adjust taxes to prevent prices from falling too low after legalization. Canadian marijuana companies — which have surged in value — will achieve economies of scale that will help drive down production cost, according to Bill Blair, the lawmaker and former Toronto police chief leading the legalization effort.
- Brookfield Asset Management Inc. beat the fundraising target for its first infrastructure debt fund as Canada’s largest alternative-asset manager looks to capitalize on the retreat of traditional banks from leveraged finance. Brookfield Infrastructure Debt Fund raised $885 million, above its $700 million target, over about 18 months from institutional investors in North America and Asia, Hadley Peer Marshall, a senior vice president in Brookfield’s infrastructure group, said by phone from New York. This comes after Brookfield raised a target-topping $14 billion for its third infrastructure fund in July 2016.
- European stocks inch lower on the first trading day of the new year, extending a losing streak that trimmed 2017 gains last week, while the euro rises to $1.2035, a level not seen since September. The Stoxx Europe 600 Index falls 0.2%, down for a third day. The benchmark rose 7.7% last year. Miners and carmakers lead losses on Tuesday, while energy shares track oil prices higher.
- The dollar weakened against all G-10 peers and Treasuries fell. Investors begin 2018 on the heels of a winning year for equities and a losing one for the greenback. Global stocks last year posted their best performance since 2009, fueled by a synchronous expansion and a go-slow approach toward monetary-stimulus withdrawal in major economies.
- Chinese financial markets started the new year in celebratory mode, with the MSCI China Index extending a 12-month rally and the yuan climbing to its strongest in almost four months. The gauge of offshore-traded shares was 2 percent higher as of 5 p.m. in Hong Kong, its biggest intraday gain since Dec. 8. Real estate developers accounted for seven of the top 10 performers.
- Oil steadied after a second annual increase, supported by concern that protests in Iran could lead to a supply disruption in OPEC’s third-biggest member. Futures were little changed in New York after a 3.3 percent gain last week. The death toll during the unrest in Iran rose as security forces clashed with demonstrators rallying in a rare show of displeasure with the nation’s leaders. The country pumps about 3.8 million barrels a day.
- Gold is opening the new year on the front foot. Bullion advanced for an eighth day to head for the longest stretch of gains since mid-2011, building on an annual surge. Bullion for immediate delivery advanced 0.7 percent to $1,312.03 at 10:49 a.m. in London, according to Bloomberg generic pricing. Last year, the commodity climbed 14 percent, the best performance in seven years. The Bloomberg Dollar Spot Index lost 8.5 percent in 2017.
- India’s benchmark equity index closed little changed after intraday fluctuations, in contrast to a strong rally in Asia, on concern the government may impose higher capital gains tax on stocks amid slow economic recovery. The S&P BSE Sensex was little changed at 33,812.26 in Mumbai. The benchmark kicked off the year on Monday with its worst drop in a month. Fourteen of 19 sectoral sub-indexes compiled by BSE Ltd. declined led by a gauge of telecommunication companies. Bharti Airtel Ltd. and State Bank of India were the worst performers on the main measure.
- Russia’s natural gas production rose to its highest ever last year, driven by increasing sales to Europe and rising domestic demand. Government data published Tuesday showed that output jumped 7.9 percent to beat a 2011 record. With a pipeline of projects including plans to expand into China and new liquefied natural gas plants, the country may close the gap on the U.S., which leapfrogged Russia to the top spot in global production of the fuel nine years ago.
- Euro-area manufacturing growth accelerated to a record in December, capping a solid year for factories which is now eating into production capacity. With export demand strengthening, IHS Markit’s monthly report on manufacturing showed both new orders and output were the strongest in 17 years. Germany’s gauge rose to a record and France improved. Global growth also got a boost from a solid reading in China’s manufacturing sector.
- Third time’s the charm, but not for Korea’s largest carmaking group. Hyundai Motor Co. and affiliate Kia Motors Corp. said Tuesday they sold 7.25 million autos last year, a million short of the companies’ joint target and missing forecasts for the third consecutive year. Deliveries fell to the lowest level since 2012. The group is forecasting a 4.1 percent increase to 7.55 million vehicles for 2018.
- BP Plc, the British oil major that invests more in the U.S. than anywhere else, expects to take a charge of about $1.5 billion following recent tax changes in the country, despite the prospects of long-term gains from the legislation. “The lowering of the U.S. corporate income-tax rate to 21 percent requires revaluation of BP’s U.S. deferred tax assets and liabilities,” the London-based company said Tuesday in a statement. “The current estimated impact of this will be a one-off non-cash charge” affecting fourth-quarter 2017 results.
- President Donald Trump and many Democrats and Republicans in Congress all enter the new year spoiling for a fight. Unresolved issues set aside in 2017 to make way for a tax overhaul are poised to surface early in 2018, giving Trump the opportunity for the confrontation with Washington’s establishment that he’s promised since his election.
- Bitcoin is already having a bad year. For the first time since 2015, the cryptocurrency began a new year by declining, extending its slide from a record $19,511 reached on Dec. 18. The virtual coin fell to $13,624.56 as of 5 p.m. in New York on Monday, down 4.8 percent from Friday, according to data compiled by Bloomberg. That’s also a drop from the $14,156 it hit Sunday, according to coinmarketcap.com, which tracks daily prices. The cryptocurrency fluctuated in Asian trading on Tuesday, trading 1.9 percent lower as of 3:22 p.m. in Hong Kong.
- As automakers seal their first annual U.S. sales decline since 2009, expectations for more interest-rate hikes are bolstering the nearly unanimous view that car demand will shrink again in 2018.
- Companies that make packaging from plants instead of fossil fuels are starting to challenge the oil industry’s ambition to increase the supply of raw materials for plastics. Use of bioplastics made from sugar cane, wood and corn will grow at least 50 percent in the next five years, according to the European Bioplastics Association in Berlin, whose members include Cargill Inc. and Mitsubishi Chemical Holdings Corp. German chemical giant BASF SE and the Finnish paper maker Stora Enso Oyj have stepped into the business to meet demand from the likes of Coca-Cola Co. to Lego A/S.
- GFG Alliance, the acquisitive group led by U.K. businessman Sanjeev Gupta, agreed to purchase an Australian coal mine from Glencore Plc to feed its steel operations in the country. London-based GFG signed a binding agreement to buy Glencore’s Tahmoor underground mining operation in New South Wales state, it said in an emailed statement Tuesday, confirming an earlier Bloomberg News report. The deal is a key element in GFG’s plan to optimize and expand production at its Whyalla steel works in South Australia, according to the statement, which didn’t provide financial details.
- As automakers seal their first annual U.S. sales decline since 2009, expectations for more interest-rate hikes are bolstering the nearly unanimous view that car demand will shrink again in 2018. Few analysts anticipate sales this year will reach 17 million vehicles, which was just achieved for a third-straight year and only the fifth time in history. The Federal Reserve forecasts three rate hikes this year, crimping the free-flowing credit that’s helped fuel a record streak of demand growth that’s come to an end.
- The euro rallied close to a three-year high as the dollar continued its slide from 2017 and strong European manufacturing data supported the shared currency. The greenback fell against all of its Group-of-10 peers, with the Bloomberg Dollar Spot Index reaching its lowest level since Sept. 26. Tuesday’s drop added to the dollar’s more than 12 percent slide against the euro last year, its worst performance since 2003. Analysts surveyed by Bloomberg forecast the U.S. Dollar Index to slide further in 2018 as concerns about low inflation raise questions about the prospects for tighter Federal Reserve policy.
- When high rollers are the biggest drivers of Macau’s casino revenue, it’s much harder for analysts to predict betting results. The hub’s casino stocks tumbled Tuesday, with Wynn Resorts Ltd.’s Macau unit dropping the most in more than a year intraday on news that gaming revenue missed the median estimate of a 20 percent increase in a Bloomberg survey. Gaming receipts rose almost 15 percent in December to 22.7 billion patacas ($2.8 billion).
- Freeport-McMoRan Inc. won a six-month extension to a license that allows the company to run its Grasberg copper and gold mine as Indonesia said talks to seal a roadmap for the transfer of majority ownership in the miner’s local unit are almost complete.
- It may be the trickiest job to fill in central banking. And as the Federal Reserve Bank of New York search committee casts a wide net to find a replacement for its outgoing president, William Dudley, the wish list is getting long. Interviews with 10 members of the Fed’s advisory boards, which the committee is consulting, suggest they want a president with market expertise, crisis-management chops, strong leadership abilities, an eye on inequality and an ear for regional trends. The jury is out on whether he or she should be an economist, even though the New York Fed president traditionally plays a big role in guiding U.S. monetary policy. Some advisers are pushing for a woman or a minority and one of the search firms hired by the committee is focusing on just such picks.
*All sources from Bloomberg unless otherwise specified