January 5th, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Canadian pension fund Caisse de Depot et Placement du Quebec and its partners have hired advisers to explore options for McInnis Cement, according to people familiar with the matter. The investors are considering options for the cement maker that could include bringing in new partners or an outright sale of the company, the people said, asking not to be identified as the details aren’t public. No final decisions have been made and the group may choose to keep McInnis Cement, they said.
• Canadian marijuana stocks can surge on the slightest hope — from legalization in California where most don’t even have exposure — to forecasts for explosive sales growth. But here’s a concrete reason for support: use of the drug for medical purposes is surging in Canada. People registered to use medicinal marijuana reached 235,621 by the end of September, up 40 percent from the end of March, according to quarterly figures released Thursday by Health Canada, the nation’s public health agency. About 0.6 percent of the country’s almost 37 million population use pot for pain and other afflictions.
• Toronto’s housing market drop is echoing Vancouver’s earlier plunge but Canada’s most populous city may not bounce back so quickly as new rules continue to tighten access to home loans. Canada’s two largest housing markets both saw a dramatic slide after a raft of regulations were instituted to tame runaway house prices. Benchmark price gains in Vancouver fell for five months after policy makers introduced a foreign buyers tax in August 2016 and began climbing steadily again early in 2017. In Toronto, prices have fallen for seven months since May and the market continues to cool.

 

 

World Headlines

• European stocks head for their longest winning streak in two months, helped by a rally in carmakers and health-care shares. The Stoxx Europe 600 Index adds 0.4%, mirroring gains in Asian markets. A gauge of auto-related shares heads for its highest level since June 2015 after JPMorgan says it expects 2018 to be an “autos bull market year.” The Swiss Market Index is also up for a third day, poised to close at a record.
• U.S. stock-index futures rise, signaling the first week of 2018 will wind up with gains, as investor focus shifts to U.S. non-farm payroll data. The jobs market performed better than economists expected during 2017, however a similar performance is seen as unlikely given the unemployment rate is below what the Federal Reserve regards as sustainable and companies are struggling to find quality applicants to fill openings.
• Oil retreated from its highest closing price in three years as some of the gains driven by a plunge in U.S. crude stockpiles melted away. Futures lost 0.9 percent in New York, trimming this week’s advance to 1.7 percent. Crude stockpiles in the U.S. slid by 7.42 million barrels last week, the biggest decline since August, according to government data Thursday. Oil output rose for the 10th time in 11 weeks, and inventories of gasoline and distillates such as heating fuel fell.
• The materials sector outperformed broader market gains in the U.S. and Canada on Thursday, led by metals and mining stocks. Gold rose for a 10th day even as traders become less bullish. Rising steel prices confirm the market is “red hot,” according to Longbow. Elsewhere, the Bloomberg Commodity Index snapped a 14-day winning streak.
• Natural gas surged to 60 times the going rate as howling blizzard conditions stoked demand for the furnace fuel across the U.S. Northeast. Spot prices for the fuel used to heat homes and generate power reached a record $175 per million British thermal units in New York, according to Consolidated Edison Inc. That’s a far cry from the $2.93 that U.S. gas futureshave been averaging on the New York Mercantile Exchange this winter.
• Morgan Stanley said it expects to set aside $1.25 billion for the fourth quarter of 2017 as a result of the U.S. corporate tax overhaul driven by President Donald Trump. The estimated tax provision is based on assumptions made by the firm and may change as it receives additional clarification, the bank said in a statement Friday.
• President Donald Trump is seeking a quick fix to the U.S. free-trade agreement with South Korea even as he exchanges insults with the Asian nation’s nuclear-armed neighbor. U.S. and South Korean negotiators will meet Friday in Washington to discuss changes to the pact between the two countries, known as Korus. The Trump administration has cast the deal as a failure, noting America’s trade deficit with South Korea has more than doubled since the pact took force in 2012.
• The Justice Department’s decision to free federal prosecutors to enforce marijuana laws in states that have legalized the drug adds to the political burdens of congressional Republicans trying to hold their House and Senate majorities in an already challenging election year. An early indication of the issue’s potency was the fierce reaction of Republican Senator Cory Gardner of Colorado, a state where voters legalized cultivation and possession in 2012. Gardner, who also is chairman of the GOP’s Senate campaign arm, slammed the decision by Attorney General Jeff Sessions as “a trampling of Colorado’s rights, its voters.”
• European Central Bank policy makers who marked the turn of the year by pushing for an end to crisis-era stimulus measures just got a reminder that they’ll have to wait a while longer for price pressures to pick up. Despite solid economic growth, euro-area inflation slowed to 1.4 percent last month from 1.5 percent, and the underlying rate unexpectedly failed to rise from a meagre 0.9 percent. The data highlight the difficulty for the ECB in judging when to pull back, even as some Governing Council members warn of the dangers of postponing the decision too long.
• Apple Inc. said all Mac computers and iOS devices, like iPhones and iPads, are affected by chip security flaws unearthed this week, but the company stressed there are no known exploits impacting users. The Cupertino, California-based company said recent software updates for iPads, iPhones, iPod touches, Mac desktops and laptops, and the Apple TV set-top-box mitigate one of the vulnerabilities known as Meltdown. The Apple Watch, which runs a derivative of the iPhone’s operating system is not affected, according to the company.
• Takeda Pharmaceutical Co. agreed to buy TiGenix NV, a Belgian maker of stem-cell therapies working on a treatment for Crohn’s disease, for 520 million euros ($627 million) to strengthen its position in gastrointestinal medicine. Takeda will offer 1.78 euros a share in a tender offer, the Osaka, Japan-based company said in a statement Friday. The price is 81 percent above TiGenix’s closing level Thursday. The TiGenix board supports the offer, and the deal is expected to close near the end of the first quarter or the beginning of the second, according to the statement.
• Fiat Chrysler Automobiles NV is leading gains in automotive industry stocks, currently Europe’s best performing sector since the start of the year on analyst expectations of strong car deliveries in 2018.
• Gold imports by India, the world’s second-biggest market after China, surged 37 percent in December after falling for three straight months, according to a person familiar with the data. Inward shipments increased to 77.7 metric tons from 56.9 tons a year ago, the person said, asking not to be named as the information isn’t public. In value terms, purchases rose 39.8 percent to 176.7 billion rupees ($2.8 billion). Finance Ministry spokesman D.S. Malik declined to comment.
• President Donald Trump directed top White House lawyer Don McGahn to persuade Attorney General Jeff Sessions not to recuse himself last spring from the Justice Department’s investigation into Russian election meddling, according to a person familiar with the matter. The exchange between Sessions and McGahn, which was first reported by the New York Times, took place after reports that Sessions had a previously undisclosed meeting with Sergey Kislyak, Russia’s ambassador to the U.S., during the 2016 presidential campaign. The revelation caused Democrats to call for Sessions to recuse himself from the investigation, saying the meeting posed a conflict of interest.
• The U.S. is suspending security assistance to Pakistan as the Trump administration escalates pressure on the government in Islamabad to prevent terrorist groups from finding safe harbor in the country. The action announced Thursday is in addition to a decision disclosed earlier this week in which the National Security Council said the U.S. will continue to withhold $255 million in military aid as the White House reviews Pakistan’s “level of cooperation” in fighting terrorism.
• U.K. car sales suffered their biggest annual slide since the global recession, stunted by Brexit’s impact on buyer confidence and lingering skepticism over the emissions performance of diesel models. Registrations fell 5.7 percent to 2.54 million vehicles, the steepest drop since 2009, according to the Society for Motor Manufacturers and Traders. Demand for diesel autos slumped 17 percent, with a customer swing back to gasoline models leading to the first annual increase in carbon emissions since records began in 1997.
• Former Uber Technologies Inc. Chief Executive Officer Travis Kalanick, who has long boasted that he’s never sold any shares in the company he co-founded, plans to sell about 29 percent of his stake in the ride-hailing company, people with knowledge of the matter said. Kalanick stands to reap about $1.4 billion from the transaction with SoftBank Group Corp. and a consortium of investors who have agreed to buy equity valuing Uber at $48 billion.
• India forecast its economy will expand at the slowest pace since Prime Minister Narendra Modi came to power in 2014, as a chaotic roll out of a new sales tax roiled supply chains and weakened demand. Gross domestic product will grow 6.5 percent in the year through March 2018, the Statistics Ministry said in a statement in New Delhi on Friday. That compares with the 6.6 percent median estimate in a Bloomberg survey of 20 economists and 7.1 percent the previous year.
• Ryanair Holdings Plc strengthened its dominance of Europe’s discount-airline market in 2017 by adding more customers than any of its rivals, even as a scheduling foul-up contributed to its smallest gain in passenger numbers in three years. The company filled 12 million more seats in 2017 than a year earlier, while second-ranked EasyJet Plc said Friday that it flew 7.2 million more passengers in the period.
• Fortis Healthcare Ltd. is seeking a cash injection of as much as 50 billion rupees ($790 million) as part of its billionaire founders’ talks to sell their stake in India’s second-largest private hospital chain, according to President Daljit Singh. Malvinder and Shivinder Singh have been in talks with private equity firms for the past year to sell their 34 percent stake in Fortis to pay down debt at their holding company, Daljit Singh said in an interview Thursday. The deal could also bring fresh capital for Fortis that would be used to partly finance the acquisition of its Singapore-based trust, announced in November, he said.
• HNA Group Co. walked away from late-stage negotiations to buy a stake in Hong Kong fund house Value Partners Group Ltd., people with knowledge of the matter said. HNA pulled out of talks to buy a significant stake from Value Partners founders Cheah Cheng Hye and V-Nee Yeh just weeks before a final agreement was expected to be signed, according to one of the people. The Chinese conglomerate’s termination of the negotiations wasn’t related to difficulty obtaining financing, another person said, asking not to be identified because the information is private.
• Little more than a year after flagging multi-billion dollar writedowns that threatened its very survival, Toshiba Corp. has gained some closure with the sale of its former nuclear unit Westinghouse Electric Co. Westinghouse was put into bankruptcy by Toshiba in March after project delays crippled earnings from the nuclear plant business. On Thursday, Brookfield Business Partners LP agreed to buy what remains of its U.S. business out of bankruptcy, as well as its non-bankrupt European business, for $4.6 billion.

 

 

*All sources from Bloomberg unless otherwise specified