By MacNicol & Associates In Morning Notes
March 1st, 2018
Daily Market Commentary
- Canadian stocks fell 3.2 percent in February, their worst month since December 2015, after Wednesday’s losses accelerated through the afternoon. The S&P/TSX Composite Index lost 229 points or 1.5 percent to 15,442.58, the biggest drop in nearly three weeks. Energy stocks were the biggest culprit, tumbling 2.9 percent after government data showed U.S. crude stockpiles grew more than expected.
- Toronto-Dominion Bank on Thursday reported first-quarter results which were ahead of market expectations, helped by strong performance in the United States and Canada. Canada’s second biggest bank by market value said earnings per share, excluding one-off items, rose to C$1.56 in the quarter to Jan 31. From C$1.33 a year earlier. TD also hiked its dividend 11.7 per cent to 67 cents. (Globe and Mail)
- Negotiators from the U.S., Canada and Mexico finished work on regulatory best practices for Nafta, the first official “chapter” completed in the latest talks in Mexico City, according to a person with knowledge of the process. The three nations had agreed to some similar measures on regulatory coherence as part of the Trans-Pacific Partnership, but the rules approved for the North American Free Trade Agreement go deeper, according to the person, who asked not to be identified before a public announcement and wouldn’t elaborate on the chapter’s specifics. U.S. President Donald Trump withdrew from that Pacific Rim pact a year ago, days after taking office.
- First Gulf Development Corp. is considering everything from an initial public offering to bond financing to get Canada’s biggest office project off the ground — 12 million square feet of space in Toronto that will hold more than 50,000 workers and cost about C$8 billion ($6.3 billion) to build. The company expects to get planning approval by June to start development on the 60 acre (24-hectare) site known as East Harbour, which the city officially pitched for Amazon’s HQ2. The project, located east of the financial core and next to the smart city proposed by Google parent Alphabet Inc., will include a mix of office, retail and institutional space.
- European stocks retreat for a third day amid a slew of corporate profit updates, following yet another weak session in the U.S. The Stoxx Europe 600 Index drops 0.3% as traders await another appearance by Fed Chairman Jerome Powell, whose hawkish comments sent shares tumbling earlier this week.
- U.S. index futures drop following Asian and European equities lower as investors await the testimony of new Fed Chairman Jerome Powell before the Senate Banking Committee. The S&P 500 dropped more than 1% on Wednesday, adding to the worst month in two years.
- Asian shares dropped for a third day, with materials companies tumbling, as the dollar rose ahead of Federal Reserve Chairman Jerome Powell’s second congressional appearance this week on Thursday. The MSCI Asia Pacific Index slid 0.7 percent to 176.08 as of 4:31 p.m. in Hong Kong, set to close at a two-week low. Japan’s Topix fell 1.6 percent, the most since February 9.
- Oil extended its biggest decline in three weeks as U.S. data showed inventories and production both surged, while the dollar gained. Futures in New York fell as much as 0.9 percent, after losing 3.6 percent in the previous two sessions. U.S. crude stockpiles last week rose to the highest level since December, exceeding analysts’ forecasts, while gasoline reserves expanded at four times the predicted rate. Meanwhile, data for November showed the shale boom drove U.S. output to a record.
- Gold drops on expectations of higher real rates as investors brace for second round of comments from Federal Reserve Chairman Jerome Powell Thursday. Palladium fell.
- Euro-area factories maintained their robust pace of output last month, but there are mounting signs that growth momentum may have reached its limit. The Purchasing Managers’ Index for manufacturing fell for a second month in February, and its decline since the end of 2017 has been the steepest in two years. A slowdown in export orders to the weakest in almost a year means growth could cool further, IHS Markit said on Thursday.
- President Donald Trump is set to announce steep tariffs on steel and aluminum imports Thursday, people familiar with the matter said, in what would be one of his toughest actions yet to implement a hawkish trade agenda that risks antagonizing friends and foes alike. Trump told aides he wants to announce tariffs of 25 percent on steel and 10 percent on aluminum from all countries, according to two people who asked not to be identified because the deliberations aren’t public. One person said the details of the decision may still change, and it’s possible some countries may be granted exemptions.
- Advent International Corp. agreed to acquire Laird Plc in a deal valuing the smartphone parts supplier at about 1 billion pounds ($1.4 billion). The private equity firm is offering Laird investors 200 pence per share in cash, the company said in a London regulatory filing Thursday. The bid represents a 73 percent premium to Laird’s Wednesday closing price. Laird directors consider the terms of the acquisition to be fair and reasonable and plan to unanimously recommend the offer, according to the statement. A shareholder meeting is slated to be scheduled around April 17.
- China’s government aims to raise as much as 200 billion yuan ($31.5 billion) to invest in homegrown chip companies and accelerate its ambition of building a world-class semiconductor industry, people familiar with the matter said. The state-backed China Integrated Circuit Industry Investment Fund Co. is in talks with government agencies and corporations to raise at least 150 billion yuan for its second fund vehicle but is angling for up to 200 billion yuan, the people said, asking not to be identified talking about a plan that hasn’t been publicized. It intends to begin deploying capital in the second half of the year, they added.
- In his first five years, President Xi Jinping has seized control of economic policy, reasserted the Communist Party’s authority and sidelined potential rivals in an unprecedented anti-corruption campaign. In a two-week session starting Monday, China’s rubber-stamp parliament is expected to enact sweeping legislative changes that would allow Xi to rule indefinitely and give him greater control over the levers of money and power. The agenda includes repealing presidential term limits, creating a powerful new agency to police officials and possibly approving the biggest regulatory overhaul of the $43 trillion finance-and-insurance sector in 15 years.
- The dream of flying cars has been around longer than Boeing Co. has been making airplanes. Now a vision from the pages of Jules Verne is near enough to occupy the present-day plans of Boeing’s leadership. “I think it will happen faster than any of us understand,” CEO Dennis Muilenburg said in an interview. “Real prototype vehicles are being built right now. So the technology is very doable.” The new era of flying urban vehicles is close enough for the man overseeing jetliners and spacecraft to begin plotting what he calls the “rules of the road” for three-dimensional highways.
- Salesforce.com Inc. gave a revenue forecast that topped analysts’ estimates, buoyed by growth in its cloud-based business products. The San Francisco-based company raised its 2019 fiscal year sales guidance to as much as $12.7 billion. Analysts on average estimated $12.5 billion, according to data compiled by Bloomberg. Still, the rising costs of Salesforce’s global expansion tempered the reaction of investors. Shares rose about 1.5 percent in extended trading.
- Brazil’s lower house of Congress voted to approve watered down rules on car-hailing apps, in a boost to Uber Technologies Inc. in one of its largest markets. The deputies approved late on Wednesday two of three amendments that had been made in the Senate last year, according to the lower house news agency. Those amendments had watered down the original bill by eliminating requirements that could make it more difficult for car-hailing companies to operate, such as using taxi-style license plates.
- Hope Hicks’s departure from the White House punctuates the attrition in President Donald Trump’s inner circle, the close aides and confidantes that buoyed him in his first year in office but who are hitting the exits as his presidency encounters its worst turbulence. Trump’s communications director, the fourth person in that position since his inauguration, announced on Wednesday that she would resign. She follows several other top aides who’ve left since the start of the year. But Hicks’s exit is more personal — she has been described as having a near father-daughter relationship with the president.
- Broadcom Ltd.’s hostile bid for Qualcomm Inc. is drawing the attention of a secretive U.S. panel that reviews whether acquisitions of American companies raise national security concerns, according to two people familiar with the matter. The Committee on Foreign Investment in the U.S., which conducts its reviews far from the public eye, is split on whether to review Broadcom’s hotly contested effort to win control of its rival, said the people, who declined to be named because the discussions are confidential.
- Exxon Mobil Corp. said it’s abandoning joint ventures with Russia’s Rosneft PJSC after international sanctions against the nation’s energy sector paralyzed a historic drilling project. Exxon’s decision to quit its biggest exploration region was made late last year as the U.S. expanded sanctions, the company said in a 10-k filing on Wednesday. “The corporation expects it will formally initiate the withdrawal in 2018,” Exxon said.
- Luxottica Group SpA, the Italian eyewear maker, won unconditional European Union approval for its 24 billion euro ($29 billion) merger with France’s Essilor International SA, the European Commission said. Shares of both companies jumped as much as 5.6 percent. The deal creates a branded goods giant with a market value that rivals the second-biggest luxury maker Hermes International. The companies said they expect revenue and cost savings of 400 million euros to 600 million euros in the medium term.
- WPP Plc suffered the worst stock slump since 1999 after Chief Executive Officer Martin Sorrell slashed the profit outlook and predicted a year of no growth, giving already jittery investors another reminder that the advertising industry is undergoing its most dramatic upheaval in decades. Long-term earnings growth will be as little as 5 percent and twice that at best, compared with a prediction of as much as 15 percent previously. The year got off to a “slow start,” WPP said, continuing a trend from 2017 that saw flat margins and sales. Investors responded by pushing the shares down as much as 15 percent, briefly prompting a stock suspension.
- The brewer of Budweiser has trounced most major producers of consumer goods in sales growth, fueled by exports of Stella Artois and Corona. Anheuser-Busch InBev NV is proving it’s not just a cost-killer as revenue in 2017 was fueled by double-digit growth in the Belgian and Mexican brands. The company has beat not only its beer-industry rivals but also Nestle SA, L’Oreal SA and Procter & Gamble Co. in average organic sales growth over the past five years. AB InBev’s fourth-quarter revenue rose 8.2 percent, beating the average analyst estimate for 5.3 percent growth. The brewer’s track record provides support for a business model based on serial acquisitions, such as the $106 billion purchase of SABMiller in 2016. The stock rose as much as 6.2 percent, adding $13 billion to its market value.
- How have the mighty fallen. A year ago foreign funds including Franklin Templeton Investments were piling into Indian bonds. A record-long slump has now prompted the nation’s biggest bank to say enough is enough. India’s 10-year bonds dropped for a seventh month in February, the longest-losing streak in data compiled by Bloomberg starting in November 1998. Government-run lenders such as State Bank of India, Punjab National Bank and Bank of Baroda, are the biggest holders of the securities and have been net sellers as a group this year.
- Steel and aluminum companies in the world’s top producing countries fell on the risk that stiffer U.S. import tariffs will trigger a global tit-for-tat trade war. The biggest impact was felt in Japan, a major steel exporter, where shares in the second-biggest mill fell by as much as 3.8 percent. Producers of the alloy in China and India also dropped along with aluminum smelters including China Hongqiao Group and Aluminum Corp. of China Ltd.
- AirAsia Bhd., the region’s biggest discount carrier, agreed to sell aircraft parked in a leasing company for $1.18 billion as it generates cash to reduce debt. The stock rose to a record high. Fly Leasing Ltd. and Incline B Aviation LP, two aircraft-leasing companies managed by BBAM LP, and Nomura Babcock & Brown Co. will acquire 132 Airbus SE narrow-body aircraft and 14 engines, and have an option to buy 50 planes due to be delivered, AirAsia said in a statement Thursday. Sepang, Malaysia-based AirAsia expects a sales gain of about 967 million ringgit ($246 million) from the transaction.
*All sources from Bloomberg unless otherwise specified