By MacNicol & Associates In Morning Notes
March 16th, 2018
Daily Market Commentary
- A reinvigorated U.S. economy under Donald Trump is a better bet than Canada, where a ticking consumer-debt bomb and declining competitiveness are dragging on asset prices, according to top-performing money managers north of the border. President Trump’s tax cuts and pro-business agenda have revved up growth, stocks and corporate confidence, the managers said in a panel discussion at Bloomberg’s Toronto offices on Wednesday. Contrast that with Canada, where minimum wage hikes and carbon levies are ratcheting up business costs as a housing boom pushes consumer credit to a near-record 170 percent of disposable income.
- De Beers intends to buy half of Toronto-based Kennady Diamonds Inc. from its partner Mountain Province Diamonds Inc. as it expands in gem mining in Canada. De Beers has signed a memorandum of understanding with Mountain Province to merge Kennady into their existing joint venture to mine Gahcho Kue, the world’s biggest new diamond mine. The companies are still working on the commercial terms of the deal, Mountain Province said in a statement Friday.
- A Canadian judge awarded investors $2.63 billion in their claim against the former head of a fraudulent Chinese forestry company, in one of the largest such payouts in Canadian history. Allen Chan, Sino-Forest’s ex-chief executive officer, “abused his unique position” to “orchestrate an extremely large and complex fraud, resulting in the loss by Sino-Forest of billions of dollars,” Ontario Superior Court Judge Michael Penny said in the March 14 ruling. The $2.63 billion was awarded to the Sino-Forest Litigation Trust, which was created in 2013 to consolidate all outstanding claims against the company. Penny also awarded $5 million in punitive damages.
- The dollar weakened as investors considered the implications of personnel turmoil potentially continuing in the Trump administration. European stocks fluctuated, Asian shares edged lower, and U.S. futures drifted as equities traded without much conviction. The greenback was mixed against its major peers, but a jump by the Japanese yen helped drive down Bloomberg’s dollar index. The Washington Post reported that President Donald Trump plans to remove his national security adviser, something the White House press secretary later denied was happening. Treasuries gained, followed by government bonds in Europe, gold and the Swiss franc. The euro advanced with the pound.
- Asian stocks fell slightly, paring its weekly gain, as investors stayed cautious amid conflicting reports on whether Donald Trump planned to remove his national security adviser. The MSCI Asia Pacific Index declined 0.1 percent as of 4:01 p.m. in Hong Kong. The benchmark gauge gained 1.7 percent this week. Japan’s Topix index closed 0.4 percent lower as the yen strengthened.
- Oil held above $61 a barrel, paring the weekly loss, as investors weighed surging U.S. crude production against a warning from the International Energy Agency of an impending shortfall in global supplies. Futures in New York rose slightly Friday but headed for a weekly drop of 1.1 percent. While U.S. crude production jumped to 10.4 million barrels a day last week, according to government data, the dire situation in Venezuela’s energy sector may exacerbate a worldwide supply deficit expected later this year, the Paris-based IEA said
- Gold heads for weekly decline as dollar’s buoyed by remarks from new White House appointee Larry Kudlow, who said he’d sell gold and buy the greenback.
- Euro-area inflation slowed more than initially estimated last month, highlighting the challenges faced by the European Central Bank as it tries to stoke price pressures. Consumer prices in the 19-country bloc rose just 1.1 percent in February from a year earlier, according the European Union’s statistical office. That’s the weakest rate since late 2016 and falls short of an initial reading of 1.2 percent.
- Siemens Healthineers AG shares soared in their trading debut in Frankfurt after the health-equipment company’s German parent raised 4.2 billion euros ($5.2 billion) in the country’s second-biggest initial public offering in almost two decades. Stock in the maker of medical scanners and X-ray machines rose as much as 6.8 percent and was 5.8 percent higher at 29.63 euros at 11:38 a.m. on Friday, giving a market value of 30 billion euros. Trading was delayed because of a technical glitch in the market.
- A deepening diplomatic spat with the West and a fresh round of penalties aren’t enough to put investors off eurobond being sold by Russia today as bids near $6.5 billion. The deal is on track to price at around mid-afternoon London time, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak publicly. In a break from convention, local investors are being given priority in the sale in a Kremlin move to encourage wealthy Russians to repatriate capital.
- President Donald Trump is not about to oust his national security adviser, H.R. McMaster, according to White House Press Secretary Sarah Huckabee Sanders, even as speculation intensified that McMaster’s departure had already been decided. Sanders tweeted on McMaster’s status late Thursday night following a Washington Post report that Trump had decided to replace the Army lieutenant general, who has led the National Security Council for more than a year. The Wall Street Journal later reported that Trump wants to remove McMaster and has conveyed his wishes to White House Chief of Staff John Kelly.
- Walmart Inc. is in discussions to spend about $7 billion to become the largest investor in India’s leading e-commerce company, according to people familiar with the matter, a move that would put the U.S. retailer in competition with Amazon.com Inc. in one of the most promising online retail markets. The Bentonville, Arkansas-based retail giant plans to buy about a third of Flipkart Online Services Pvt, in part by purchasing stakes from Tiger Global Management and SoftBank Group Corp., said the people, asking not to be identified because the talks are private. The deal may push the valuation of the homegrown startup to about $20 billion, the people said, up from about $12 billion last year. The talks are at a critical stage and may wrap up this month. It’s also possible specifics such as the valuation or stake size may still change, and the deal may not come to fruition.
- President Donald Trump’s decision to fire his top diplomat has put the Iran nuclear agreement at risk and cast new uncertainty on a meeting of the accord’s signatories. Diplomats from six world powers and Iran convened in Vienna on Friday to review the nuclear deal, called the Joint Comprehensive Plan of Action, which restricts the Persian Gulf country’s nuclear work in exchange for sanctions relief. It’s the last scheduled meeting of the group before Trump’s May 12 decision on whether the U.S. sticks to the accord.
- Russian hackers are conducting a broad assault on the U.S. electric grid, water processing plants, air transportation facilities and other targets in rolling attacks on some of the country’s most sensitive infrastructure, U.S. government officials said Thursday. The announcement was the first official confirmation that Russian hackers have taken aim at facilities on which hundreds of millions of Americans depend for basic services. Bloomberg News reported in July that Russian hackers had breached more than a dozen power plants in seven states, an aggressive campaign that has since expanded to dozens of states, according to a person familiar with the investigation.
- Saudi Arabia is cutting back on its dealings with some German companies amid a diplomatic spat with its top European trading partner, according to people with knowledge of the matter. Government agencies have been told not to renew some non-essential contracts with German firms following comments made in November by Germany’s then-foreign minister, Sigmar Gabriel, two of the people said, asking not to be identified because the matter is private. Essential business is continuing as normal, they said.
- Exxon Mobil Corp. is working with a group of Pakistan’s large businesses on a proposal to build and supply the country’s third import terminal for liquefied natural gas, according to the nation’s minister for maritime affairs. Exxon has partnered with Pakistani consortium Energas to develop the import terminal, the minister, Mir Hasil Khan Bizenjo, said by phone Friday, without providing further details. An Exxon spokesman in Singapore wasn’t immediately able to comment. According to a presentation the companies made to the country’s regulators Thursday, a copy of which was obtained by Bloomberg, the group plans to start building a $150 million offshore terminal at Port Qasim near Karachi in May, pending government approvals. Exxon and Qatar would supply LNG to the terminal, which is expected to be completed by the end of 2019, according to the presentation.
- Tiffany & Co. is poised to shine again after the luxury jeweler posted sales growth worldwide and especially in the Americas, its largest region. Same-store sales, a key retail metric, climbed 4 percent in the region last quarter, which included the prime holiday season. While the measure fell short of Wall Street estimates, the stock gained 1.8 percent in early trading.
- Former Qualcomm Inc. chairman Paul Jacobs has approached several investors in a bid to acquire the chipmaker, which he once ran and was founded by his father, the Financial Times reportedwithout identifying how it obtained the information. Jacobs has informed Qualcomm’s board of his plans and approached companies including Japan’s SoftBank Group to become one of the investors, according to the FT. A buyout of Qualcomm, which has a market capitalization of $88.7 billion, would be one of the largest in history.
- Saudi Arabia’s willingness to delay the initial public offering of state oil company Aramco to 2019 has several motivations, from regulatory risk to competing projects in the government’s crowded agenda. There’s another, perhaps more significant hurdle: it appears some American investors aren’t that interested. Over the past few weeks, Aramco executives and government officials pitched their plan for what could be world’s largest share sale to some of the largest U.S. mutual fund firms and hedge funds, according to people familiar with the discussions.
- The collapse of Toys “R” Us Inc. is yet another blow for landlords, who now will have gaping holes of suburban retail space up for grabs. And few tenants would want them. The debt-laden toy chain, with more than 700 stores across the U.S., became one of the largest victims of the retail decline when it announced on Thursday that it would go out of business after a failed rescue effort. The liquidation could dump millions of square feet of real estate onto a market that’s already bloated with vacancies from retailer bankruptcies and store closures, a trend that’s been escalating as shoppers increasingly turn to the internet.
- Michael Spencer’s NEX Group Plc rose the most in almost two decades after CME Group Inc., a futures trading giant, approached the company on a potential takeover. NEX, which runs markets for trading currencies and treasuries, confirmedit’s in the early stages of negotiating with CME, an hour after Bloomberg reported on their discussions on Thursday. No agreement may be reached, NEX said. A representative of CME declined to comment. NEX, which has a market value of about 3.4 billion pounds ($4.8 billion), could also attract interest from other exchange operators, according to two people familiar with the matter who asked not to be named discussing a private matter.
- Altice NV confirmed plans to sell its telecommunications towers in France and Portugal as billionaire Patrick Drahi’s phone and cable company seeks to dispose of assets to cut debt. The company is targeting signing a deal for about 13,000 tower sites in the two countries in the first half of this year, Amsterdam-based Altice said in a statement presenting fourth-quarter results late on Thursday. The portfolio is the largest to ever come up for sale in Europe, Altice said.
- UBS Group AG faces a race against the clock in Hong Kong. The Swiss bank, under threat of a regulatory suspension from acting as a so-called sponsor on initial public offerings in the city, has such a role on roughly an estimated $4.5 billion of deals scheduled to be completed this year, a person with knowledge of the matter said. UBS executives expect the appeal against the ban could take around a year, according to two other people, who asked not to be identified because the information is private.
*All sources from Bloomberg unless otherwise specified