By MacNicol & Associates In Morning Notes
January 3rd, 2018
Daily Market Commentary
- Canada’s equity benchmark is heavily weighted toward energy, but the recent rally in West Texas Intermediate crude prices isn’t doing much for either theS&P/TSX Composite Index or Canadian energy stocks. In fact, the performance gap between WTI and the S&P/TSX is the biggest on record due to the recent collapse in prices for Western Canadian Select oil. This doesn’t bode well for Canadian stocks in 2018 — forecasters expect the benchmark to eke out a gain of just 4.4 percent.
- The Canadian prime minister spent the end of 2017 on the defensive over tax changes, his finance chief and an ethics reprimand. He often parried the attacks by saying his political opponents were only slinging mud because they didn’t want to talk about the economy, which led the Group of Seven in growth last year. Trudeau’s defense is about to weaken, with Canada’s economy poised to fall back to Earth this year from an expected 3 percent gain in 2017. The country will expand at a still solid pace of 2.2 percent in 2018, behind the U.S. and tied with Germany for second in the G-7, Bloomberg survey estimates show. Canadian growth is then forecast to slow again to 1.8 percent in 2019.
- Activist investor Bill Ackman’s Pershing Square Holdings Ltd. and Valeant Pharmaceuticals International Inc. agreed to pay $290 million to settle investor claims that they engaged in insider trading in the unsuccessful 2014 takeover bid for Botox-maker Allergan Inc. The deal, which requires the approval of a U.S. judge in Santa Ana, California, ends a squabble between Pershing Square and Valeant on whether to settle the investors’ lawsuit and when, according to a statement from Ackman’s firm Friday.
- European stocks rise for the first time in four days as new regulations known as MiFID II kick in. Retailers rally and technology companies follow overnight gains in U.S. peers. For more on MiFID II’s first day, see TLIV. The Stoxx Europe 600 Index rises 0.3%. Next leads a gauge of retail shares to the best industry performance as it raises its profit forecast after a better-than-expected Christmas.
- The dollar snapped a five-day decline, supported by higher Treasury yields ahead of the minutes of the Federal Reserve’s December policy meeting on Wednesday. The greenback advanced against most of its Group-of-10 peers, with the biggest gains versus the euro and Danish krone. The yield on 10-year Treasuries jumped by the most in two weeks on Tuesday, helping the dollar halt its slide.
- Offshore Chinese shares blasted their way into 2018 with a searing rally fueled by last year’s favorites. The MSCI China Index jumped 3.3 percent on Tuesday, its best start since 2009 and its biggest gain in almost two years. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. contributed most to the advance, in an echo of 2017, while developers extended last year’s surge amid optimism over their sales
- Oil traded near the highest close in more than two years on estimates that U.S. crude stockpiles fell for a seventh week, while unrest continued in OPEC’s third-biggest producer. Futures held steady above $60 a barrel in New York after easing 5 cents on Tuesday. Inventories probably fell by 5 million barrels last week, according to a survey before a government report on Thursday. In Iran, about 20 people have been killed since the turmoil broke out last week, though crude and condensate exports remain unaffected, Bloomberg tanker tracking shows.
- Gold retreats after surging to the highest level in more than three months as gains seen as overdone, sell-off in dollar pauses. Palladium eases from 17-year high.
- After seven years of preparation, $2 billion in compliance costs and one false start, the biggest shake-up to European regulation in a decade is finally here. With so much at stake, investors are likely to sit on their hands for now. Trading volumes slumped ahead of the changes, according to two brokers with knowledge of the matter, with client business at one major brokerage in Europe almost non-existent as the rules were poised to take effect Wednesday.
- Dominion Energy Inc. will buy Scana Corp. for $7.9 billion in a stock-for-stock deal, the companies said Wednesday in a statement. The transaction is valued at about $14.6 billion including the assumption of debt. Scana shareholders will receive 0.6690 shares of Dominion for each share of Scana, equal to about $55.35 a share.
- The European Central Bank is heading for a two-year leadership overhaul that peaks with the selection of a successor to PresidentMario Draghi, and it will be politics as much as ability that determines who get the jobs. Five of the ECB’s seven top posts will be vacated by the end of 2019, starting with Vice President Vitor Constancio this June. Among the criteria candidates should bear in mind: being a woman is a plus, and appointing a government minister would break with tradition.
- Petrobras expects to resolve all pending and prospective class action claims in the U.S. seeking compensation for market losses tied to multibillion-dollar bribery scheme Carwash, according to regulatory filing. Petrobras to pay first installment of $983m within 10 days of the judge’s approval, second installment within 10 days of the final approval and a third installment of $984m within 6 months of the final approval or Jan. 15, 2019, whichever comes late
- A record-breaking cold that’s threatening to spur heating-fuel shortages from the East Coast to Texas has driven up natural gas demand to unprecedented levels and put crops across the U.S. wheat belt at risk. Wind chill advisories and freeze warnings blanket the central U.S., while winter storm watches are in place from Massachusetts to Florida. Ice has slowed fuel deliveries from New York harbor, the gasoline and diesel hub for the region, while power prices are trading near multi-year highs.
- Ireland drew bids of more than 14 billion euros ($16.8 billion) in Europe’s first sovereign bond issue this year, according to people familiar with the offering. The country’s National Treasury Management Agency is selling a benchmark 10-year treasury bond in a syndicated deal. Ireland will sell its euro benchmark offering at 2 basis points above mid-swaps, cutting the spread from an initial target of about 5 basis points, according to the people
- Germany’s unemployment rate fell to a record low as the number of people out of work slid for a sixth month, reflecting a boom in Europe’s largest economy that could push up wages and inflation. The jobless rate was 5.5 percent in December, and the previous month’s rate was revised down to the same level, the Federal Labor Agency in Nuremberg said on Wednesday. The number of unemployed plunged by 29,000 last month, more than twice as much as the median estimate in a Bloomberg survey of economists.
- Bitcoin alternatives are closing the gap with the market leader after names like stellar and cardano became red hot as 2017 was closing. The biggest cryptocurrency’s share of market value has fallen to about 37 percent from 56 percent a month ago, according to CoinMarketCap prices for coins and tokens. Stellar, designed for cross-border payments, has more than doubled in the first trading days of this year, achieving a record market cap of more than $13 billion.
- President Donald Trump is hardening his demands for a deal to protect young undocumented immigrants from deportation, a dispute with congressional Democrats that hangs over talks this week to avoid a government shutdown. Any deal on the Deferred Action for Childhood Arrivals program, or DACA, must also forbid immigrants from sponsoring family members to join them in the U.S., end a program that allots visas to people from countries with low rates of migration to America, and provide money for a wall on the Mexican border, a White House spokesman said Tuesday. The statement echoed a Trump tweet from last week.
- Citadel, Ken Griffin’s $27 billion hedge fund firm, may get larger as it closes in on a deal to acquire the quant talent of Neil Chriss’s unwinding firm, Hutchin Hill Capital. Griffin’s firm has been in talks to hire some of the 20 people from the algorithmic-trading division called QuantOne, and possibly Chriss himself, according to a person with knowledge of the matter. A deal might also include access to Hutchin Hill’s intellectual property, but discussions are ongoing, said the person, who asked to be unidentified because the information is private.
- Vale SA and BHP Billiton Ltd. are in talks over the future of their Samarco iron-ore joint venture, including the possibility of the Brazilian miner taking full ownership, according to people familiar with the matter. One of the options could see Vale acquire Melbourne-based BHP’s half-share in the Samarco operation in Brazil, the two people said, requesting anonymity because the talks are private. Brazil’s Veja earlier reported the two producers are talking about a deal for the operation that’s been shuttered since a deadly 2015 dam spill.
*All sources from Bloomberg unless otherwise specified