By MacNicol & Associates In Morning Notes
January 4th, 2018
Daily Market Commentary
- Canadian stocks closed at a new high as oil prices approached $62, the highest in three years. The S&P/TSX Composite Index added 62 points or 0.4 percent to 16,371.55, its second day of gains. Energy shares rose 1 percent as crude gained 2.1 percent, reflecting ongoing unrest in Iran and dwindling U.S. stockpiles.
- Toronto’s housing market continues to cool as prices fell last month and the supply of homes for sale spiked ahead of new stress-test rules that went into effect this week. The benchmark home price index fell in December for the seventh consecutive month, down 0.2 percent from November, according to data released Thursday by the Toronto Real Estate Board. The index has fallen 8.9 percent since May — the largest seven-month decline in the history of data going back to 2000. The average price fell 3.5 percent from the previous month to C$735,021 ($586,000) and was up just 0.7 percent from a year earlier.
- The Canadian government is increasingly reluctant to insure mortgages against default. That may end up giving new life to a nascent bond market in the nation. For decades, most home loans made in Canada were made by the biggest banks and guaranteed by the government’s housing agency. In late 2016, regulators tightened the requirements for qualifying for that insurance, resulting in more people doing without it: about three-quarters of the mortgages made by federally regulated banks last year didn’t have government backing. Nearly half the nation’s C$1.5 trillion ($1.2 trillion) of home loans are now uninsured.
- Suncor Energy Inc. increased its stake in the Fort Hills oil-sands mine and is investing an additional C$300 million ($240 million) in the project, resolving a dispute with partner Total SA over the venture’s cost. The investment boosts Suncor’s stake to 53.1 percent from 50.8 percent, the Calgary-based company said Wednesday. Teck Resources Ltd. is increasing its stake in the project to 20.9 percent and investing C$120 million. French oil giant Total owns the remaining 26.1 percent.
- European stocks gained the most in more than two weeks on signs the global economic expansion that pushed benchmarks to records in 2017 remains intact. Builders and banks led the advance in Europe, with most of the sectors in the Stoxx Europe 600 Index showing green. Core European bonds pared Wednesday’s gains and the euro advanced toward a three-year high as data showed economic activity in the euro-area accelerated to the fastest pace in almost seven years.
- The dollar slipped and U.S. Treasuries declined as minutes of last month’s Federal Reserve meeting showed policy makers continue to back a “gradual approach” to raising interest rates.
- The MSCI Asia Pacific Index headed for a record close after benchmarks in Tokyo closed at their highest in more than a quarter century. Asian shares rose for a third day, with Japanese stocks leading gains on the country’s first trading day of 2018, after U.S. equities climbed to a new record.
- Oil climbed from the highest in three years as optimism on the global economy, cold weather and political unrest bolstered a market that’s finally shaking off a prolonged surplus. Crude is having its best start to a year since 2012, after hitting $62 a barrel in New York. Swollen inventories in the U.S. are declining and could shrink further as winter storms boost demand for heating fuel, while a strong economy underpins consumption. OPEC is continuing its fight against a global glut, while street protests are stoking concern over the stability of the group’s third-biggest producer, Iran.
- Gold declines for a second day as investors weigh minutes from the Federal Reserve’s meeting last month that showed most officials reiterating support for higher interest rates.
- London was the worst-performing home market in the U.K. last year for the first time in more than a decade and may be stuck there. Nationwide Building Society said values in the capital fell 0.5 percent — the first full-year decline since the 2009 recession — lagging behind a 2.6 percent increase nationally. It’s the first time since 2004 that the city has ended the year as the slowest-growing region
- AT&T Inc. aims to be the first U.S. carrier to provide fifth-generation, or 5G mobile service to phone customers this year, pitting the wireless giant against Verizon Communications Inc. and T-Mobile US Inc. in a costly network upgrade race to spur revenue growth. Unlike current trials using 5G technology to beam signals between stationary antennas, AT&T said in a statement it will introduce a commercial mobile service in more than a dozen U.S. cities later this year. The company didn’t offer specifics.
- This winter’s worst storm has knocked out power to thousands and canceled almost 3,000 flights. Next it’s bringing more snow, ice and winds from Florida to Nova Scotia, including New York. Winter storm warnings and advisories stretch along the U.S. East Coast, with snow forecast from Virginia Beach to Boston. Parts of New England may get more than 18 inches (46 centimeters), the National Weather Service said, while a blizzard warning has been issued for Boston, which could get 13 inches of snow and will close schools Thursday.
- A preliminary magnitude 4.5 earthquake shook San Francisco Bay Area residents out of their slumber early Thursday. The U.S. Geological Survey says the quake’s epicenter was 2 miles (3 kilometers) from Berkeley, California. The earthquake had a preliminary depth of 8 miles (13 kilometers).
- A weaker dollar could be doing the work of global central banks. The greenback begins 2018 after its worst year since 2003, and analysts at Bank of New York Mellon Corp. and Credit Agricole SA say further declines could mean central banks don’t have to tighten monetary policy as much as they may now be planning. The argument goes that by forcing up rival exchange rates, a decline in the U.S. currency could slow economic growth and inflation elsewhere, creating room for interest rates to stay lower than they otherwise would be.
- A wave of protests against the Iranian government is adding new urgency to President Donald Trump’s deliberations over whether to rip up the nuclear deal with Tehran that he has long threatened to cast aside. Trump faces a series of key decisions starting next week — foremost, whether to honor part the 2015 agreement that lifted restrictions on Iran’s banking, oil and shipping industries. He could opt to re-impose the sanctions and risk collapse of the accord, a move that could isolate the U.S.
- Billionaire Kumar Mangalam Birla’s Idea Cellular Ltd. plans to raise more than $1 billion to strengthen its war chest as competition in the world’s second-largest telecom market intensifies. The company, which is poised to merge with Vodafone Group Plc’s India unit to form the nation’s biggest wireless carrier, will raise 32.5 billion rupees ($513 million) by selling shares to its founders, according to exchange filings. It has named a panel to consider raising an additional 35 billion rupees of capital through various routes, including an institutional placement, Idea said.
- U.S. financial firms plan to expand a secretive project protecting bank accounts against crippling cyber attacks so that it will also guard trillions of dollars in investment funds. The industry-led project, called Sheltered Harbor, already is known to back up data for savings and checking accounts. But quietly, it’s wrapping in data on retail brokerage accounts at some of the nation’s largest firms, according to participants. And ultimately, the goal is to expand it to an even heftier pool of 401(k) accounts and pension funds, whose breach could upend global markets.
- The world’s biggest chipmakers and software companies, including Intel Corp. and Microsoft Corp., are coming to grips with a vulnerability that leaves vast numbers of computers and smartphones susceptible to hacking and performance slowdowns. Google researchers recently discovered that a feature, present in almost all of the billions of processors that run computers and phones around the world, could give cyberattackers unauthorized access to sensitive data — and whose remedy could drag on device performance.
- Tesla Inc. pushed back a production target for its Model 3 again after shipping fewer of the sedans than expected, setting back Elon Musk’s goal to mass-manufacture electric cars. The company now expects to assemble 5,000 Model 3s a week by the end of June, delaying plans to reach that milestone by another three months. Tesla didn’t come close to achieving an earlier forecast that it would manufacture that many of the sedans a week by the end of 2017.
- India took another step towards cleaning up a banking system riddled with bad loans, with the government seeking parliamentary approval to issue about 800 billion rupees ($12.6 billion) of bonds to fund capital injections into state lenders. Prime Minister Narendra Modi’s administration expects to sell the first of its recapitalization bonds before the fiscal year ends March 31, as part of plans announced in 2017 to repair the balance sheets of state-controlled banks, according to the proposal put to lawmakers in New Delhi on Thursday. The new bonds will carry annual interest of more than 60 billion rupees, people familiar with the matter said, asking not to be named as the information is confidential.
- Axiata Group Bhd., Malaysia’s biggest wireless carrier, is considering an initial public offering of its tower unit that could raise at least $500 million, people with knowledge of the matter said. The Kuala Lumpur-based company has been speaking to potential advisers to explore a domestic listing of Edotco Group Sdn. that could take place as soon as this year, according to the people. Axiata may invite banks to formally pitch for a role on the deal this quarter, the people said, asking not to be identified because the information is private.
- Hindalco Industries Ltd. is among potential buyers that submitted bids for U.S. aluminum producer Aleris Corp., people with knowledge of the matter said, as Indian billionaire owner Kumar Mangalam Birla moves ahead with plans to expand his overseas operations. Mumbai-listed Hindalco made a non-binding offer through its U.S. unit, Novelis Inc., and will now conduct due diligence, according to the people. A deal could value Aleris at around $2.5 billion including debt, the people said, asking not to be identified because the information is private.
- Commodities are forging a record-setting run of gains that straddles the end of 2017 and the start of the new year as crude oil notches multiyear highs and investors bet that booming global manufacturing output will help to sustain rising demand for raw materials. The Bloomberg Commodity Index, which tracks returns on 22 raw materials, posted an unprecedented 14 days of gains to Wednesday, closing at the highest since February. The index is poised for further gains as metals and oil climb higher, supported by supply disruptions, a weaker dollar and improving demand.
- Bonds from China’s property developers face the biggest risk of default in the nation’s domestic debt market as the government’s funding curbs strain their finances, according to a survey of analysts and traders. Ten out of 15 respondents in a Bloomberg survey late December see some payment failures among developers this year. Most predict yield spreads on corporate bonds that surged to four-year highs in 2017 to climb more. Builders are most vulnerable as they face policy risks with authorities restricting their funding to cool housing prices, according to China Merchants Bank Co.
- Competitive sales of municipal bonds in 2017 rose to 23.7 percent of the market, their highest level in almost two decades. Before the big rush to borrow in November and December, the use of competitive sales was on pace to break 24 percent of the market and was closing in on a level not seen since 1996, when it reached 25.4 percent. This is big (and welcome) news to all good-government types and municipal market purists, who have long wondered why so many issuers choose negotiation with banks over competitive sale, especially when the overwhelming majority of the bonds they sell are high quality and comparatively simple.
*All sources from Bloomberg unless otherwise specified