By MacNicol & Associates In Morning Notes
January 8th, 2018
Daily Market Commentary
- CST Group is seeking to acquire distressed mining assets in Canada and help restructure debt owed to China Minsheng Banking Corp. amid a recovery in prices for hard coking coal used in steel manufacturing.
- European stocks climb for a fourth day, poised for their longest winning streak in two months, as risk-on sentiment prevails in equity markets. The Stoxx Europe 600 Index adds 0.2%, following a weekly gain of 2.1%, the best start to a year since 2013. The euro trades lower against the dollar. Miners and carmakers lead gains, with the latter poised for the highest level since May 2015.
- With risk assets enjoying a strong start to 2018, corporate earnings may dictate the next move for equity markets. The S&P 500 Index posted its best week since December 2016 as investors speculated that Republican tax cuts will lead to higher company profits.
- Asian stocks rose, building on their sharpest weekly rally since September 2016, ahead of the start of earnings season and after President Donald Trump said the U.S. was open to talks with North Korea at the right time. The MSCI Asia Pacific Index rose 0.2 percent to 179.55 as of 4:09 p.m. in Hong Kong, heading to a new record as healthcare and materials companies gained.
- Oil rose after drilling activity in the U.S. eased, adding to signs the global crude surplus is abating. West Texas Intermediate futures rose 0.5 percent, following a 1.7 percent increase last week, when they hit a three-year high. Rigs drilling for crude fell by five to 742 in the seven days ended Jan. 5, according to Baker Hughes data Friday. Hedge funds retreated from the most bullish stance on WTI in 10 months during the week ended Jan. 2.
- Gold steady, following four weeks of increases, after Friday’s U.S. payrolls report missed expectations. Dollar rebounds to pare losses.
- Iron ore is in for a bumpy ride in 2018, according to the world’s largest exporter, which warns that the commodity may be whipsawed as investors and users navigate the cross-currents thrown up by China’s efforts to manage steel production and rising global mine production.
- Confidence in the euro area continued its advance at the end of 2017, capping what was probably the strongest year for the economy in a decade. The European Commission’s measure of sentiment touched its highest since late 2000 in December. The reading of 116 was above the median forecast of 114.8 in a Bloomberg survey and was based on an improvement in the outlook for industry and services.
- Partners Group Holding AG, a Swiss asset manager, agreed to buy a 45 percent stake in two Dutch offshore wind farms with an estimated value of as much as $2 billion. The purchase will make the Baar-Zug, Switzerland-based firm the biggest shareholder in the Borssele III and IV projects. Royal Dutch Shell Plc, Eneco Holdings NV and a subsidiary of Mitsubishi Corp. are reducing their stakes.
- Celgene Corp. agreed to buy closely held Impact Biomedicines for $1.1 billion upfront to gain an experimental blood cancer treatment. The price could reach as much as $7 billion over time if the drug reaches certain milestones. Under the agreement, Celgene will add as much as $1.25 billion to the upfront payment if Impact’s drug fedratinib reaches approval milestones to treat myelofibrosis, a form of bone marrow cancer, and another $150 million for other indications.
- Danish drugmaker Novo Nordisk A/S made its largest takeover offer ever, an unsolicited 2.6 billion-euro ($3.1 billion) bid for Belgium’s Ablynx NV, to beef up its lesser known blood-disorder unit and rekindle growth. The offer for Ablynx signals a higher appetite for deals at the world’s biggest maker of diabetes medicines. A year after taking the reins, Chief Executive Officer Lars Fruergaard Jorgensen is looking to expand beyond the field of diabetes and gain medicines that command high prices because they target rare diseases.
- Banca Monte dei Paschi di Siena SpA begins a roadshow for a subordinated-debt sale on Monday, little more than a year after imposing losses on 4.3 billion euros ($5.2 billion) of junior bonds as part of an Italian government rescue. The world’s oldest bank plans to issue euro-denominated Tier 2 debt in its first syndicated offering since 2015.
- India will emerge as the world’s second-largest steel producer this year, surpassing Japan in the global rankings, as the country’s growth drives rising demand and producers rush to expand plants, according to a projection from commodity powerhouse Australia. Indian output will rise to 108 million metric tons, topping Japan’s 107 million, Australia’s Department of Industry, Innovation and Science said in a quarterly resources report on Monday. In 2019, the gap will widen as Indian mills churn out 115 million tons versus Japan’s 108 million, it said. Still, both remain far smaller than China, where supply exceeds 800 million tons.
- UBS Group AG is in discussions to acquire a majority stake in its Chinese securities joint venture, Chief Executive Officer Sergio Ermotti said, as global banks rush to take advantage of Beijing’s pledge to further open its financial markets. UBS has started talks with its local partners on taking a 51 percent stake in the venture, Ermotti said in an interview in Shanghai on Monday with Bloomberg Television’s Tom Mackenzie. He also said UBS is ahead of its plan to double headcount in China over a five year period, saying the Zurich-based bank may have 1,200 staff in the country by the end of this year.
- If anything, the new year has simply underlined the challenges facing Chinese dealmakers. The first week of 2018 saw two high-profile overseas acquisitions collapse, highlighting the completion risk that foreign sellers must grapple with when dealing with a Chinese buyer. The pressure of an increasingly stringent U.S. government approval process forced Chinese financial services giant Ant Financial to abandon a $1.2 billion purchase of MoneyGram International Inc., which would have been its largest overseas deal.
- For Big Oil, the U.S. tax overhaul is turning out to be a mixed bag, especially for companies that drill overseas. Two weeks after President Donald Trump and congressional Republicans passed a sweeping rewrite of the tax code that cuts corporate rates, drillers are finding other changes that are less of a boon. BP Plc and Royal Dutch Shell Plcoffered a preview recently, saying they may write off as much as $4 billion in tax assets as a result.
- HNA Group Co. has approached brokers about the possible sale of two office buildings in London’s Canary Wharf financial district as it seeks to shed assets and cut its debt burden, two people with knowledge of the discussions said. The Chinese conglomerate has sought advice from brokers on the value of 30 South Colonnade and 17 Columbus Courtyard with a view to selling them, two of the people said, asking not to be identified because the plan is private. It has also approached investors that may be interested in purchasing the properties, which cost HNA about 366 million pounds ($496 million) in total, a separate person said.
- Prime Minister Theresa May began a major overhaul of senior ministers on Monday, enforcing her authority on a divided U.K. government at the start of high-pressure year for Brexit. While no official announcement has been made yet, Immigration MinisterBrandon Lewis was seen entering 10 Downing Street, May’s office, in a sign he’s up for a promotion. There will be more comings and goings throughout the day.
- Hanwha Total Petrochemical Co. bought alternative supply after a fire on board an Iranian oil tanker that was destined for the South Korean company. Crew members of the vessel were still missing following a collision in the East China Sea with another ship that’s left it in danger of sinking. Sanchi was ferrying 1 million barrels of condensate — a hydrocarbon liquid that’s used to make petrochemicals — to Daesan, according to a Hanwha Total spokesman. The firm plans to use its stockpiles as a replacement for the supply, and is considering whether to make additional purchases, he said, asking not to be identified because of internal policy.
- Sanofi and Regeneron Pharmaceuticals Inc. are more than doubling their spending on an experimental skin and lung cancer therapy, as the French drugmaker tries to catch up in the race to develop a new generation of oncology treatments. The partners will now commit about $1.64 billion to research on cemiplimab, also known as REGN2810, according to a joint statement Monday. The pair had agreed in 2015 to spend $650 million developing the compound, which is one of a new class of treatments that free the body’s immune system to attack tumors.
- Mergers and acquisitions in the health-care industry in 2018 are poised to exceed last year’s $200 billion, spurred by increasing competition, new sources of capital and the U.S. corporate-tax reform, according to a report by consulting firm EY. A lower tax rate for bringing back cash held offshore, which stands at about $160 billion among the top 10 U.S. life-sciences companies, will be a key driver of the deal-making, the report published Monday said. About 60 percent of executives at the helm of pharmaceutical, biotech and medical-device companies have said they plan to pursue M&A, according to EY.
*All sources from Bloomberg unless otherwise specified