By MacNicol & Associates In Morning Notes
March 6th, 2018
Daily Market Commentary
- President Donald Trump has turned his steel tariffs from a tool for protecting national security into a bargaining chip offered to Canada and Mexico to seal a quick deal on Nafta. Trump’s top negotiator, Robert Lighthizer, said Monday the U.S. has formally offered to exclude Canada and Mexico from the president’s planned tariffs on steel and aluminum if the three countries work out a deal on a new North American Free Trade Agreement.
- Toronto home sales are still depressed as the market continues to adjust to tougher mortgage qualifications and rising interest rates, though prices show signs of stabilization. Sales in Canada’s once-hot housing market fell 35 percent from a year earlier to 5,175 units, according to data released Tuesday by the Toronto Real Estate Board. It was the weakest month of sales for February since 2009.
- Bank of Canada Governor Stephen Poloz’s preoccupation with uncertainty probably means a longer pause on interest rates, in a world of fraying trade alliances and volatile markets. The central banker is expected to leave his benchmark borrowing cost unchanged at 1.25 percent at a rate decision Wednesday at 10 a.m, according to all 21 economists surveyed by Bloomberg News, with forward contracts pricing in just a 13 percent chance of a hike.
- European stocks rise in a broad rally, following global peers higher, with equity traders focusing on corporate updates amid fading concerns over political uncertainty in Italy and the prospect of a global trade war. The Stoxx 600 advances 0.8%, as Italy’s FTSE MIB erases its post-election loss to trade 1.1% higher. Smurfit Kappa soars 19% after the company rejected an unsolicited takeover proposal from International Paper Company. Just Eat drops 14% after the company’s plans for 2018 investments exceeded some analysts’ estimates.
- U.S. stock-index futures advance, indicating equities will rebound further after last week’s losses, as investors watch the latest developments on import tariffs. Contracts extend gains after a North Korean envoy says the country is open to frank talks with the U.S. on denuclearization. Pressure is mounting on President Donald Trump to ease up on his plans to impose heavy taxes on steel and aluminum imports. The European Union is preparing punitive tariffs on a range of American goods if Trump follows through, while House Speaker Paul Ryan has urged the president to reconsider the proposal.
- Asian shares bounced back, ending the longest losing streak of the year so far as concerns over U.S. President Donald Trump’s proposed tariffplan was seen easing. The MSCI Asia Pacific Index rose 1.3 percent to 174.78 as of 5:026 p.m in Hong Kong. The Asian benchmark quickly bounced back above its 100-day moving average after a brief dip below for the second time in less than a month.
- Optimism in the oil market that lifted prices by the most in almost three weeks eased as investors assessed the outlook for consumption against fears that U.S. shale output will swamp demand. After jumping 2.2 percent on Monday, prices were little changed in New York on Tuesday. On the one hand, estimates for growing crude demand and analysts’ forecasts for shrinking stockpiles at Cushing in Oklahoma, a key American storage hub, helped support futures. But the International Energy Agency’s warning that OPEC production cuts will unleash a supply surge from the U.S. and other producers sparked caution in the market.
- North Korea is open to denuclearization if the safety of Kim Jong Un’s regime is guaranteed, South Korean President Moon Jae-in’s office said. The two leaders will meet for a summit at the end of April along the border, the statement said, adding that North Korea was ready for candid talks with the U.S. to normalize relations.
- Bankers that work the oilfields can’t close deals this year thanks to the newfound financial discipline of explorers. That’s the message from Ralph Eads, chairman of energy investment banking at Jefferies Group LLC, who said he’s expecting a further drop in deal volume this year. Last year’s $74 billion in completed global deals was 23 percent lower than in 2016, according to data compiled by Bloomberg. Eight of every 10 deals outside the U.S. and Canada failed to close in the past two years, Eads said.
- A rejected takeover bid that valued Nordstrom Inc. at about $8.4 billion is pitting the department-store chain’s board against its top executives. After the company’s founding family put together an offer of about $50 a share in cash, Nordstrom’s independent directors spurned the deal on Monday, saying the price was too low. The board members, who formed a special committee to evaluate a possible transaction, warned the would-be buyers to quickly increase their offer or move on.
- Smurfit Kappa Group Plc rejected an unsolicited takeover approach from U.S. rival International Paper Co. in the latest sign of accelerating global consolidation in the booming packaging business. The cash-and-shares proposal “fails entirely” to reflect growth prospects,said the Dublin-based maker of cardboard boxes and paper bags, without disclosing the terms. Smurfit shares soared as much as 20 percent, the biggest intraday gain in almost a decade, giving a market value of about 8 billion euros ($10 billion).
- Deutsche Bank AG’s asset management unit is close to securing a strategic investment from a large Asian company as it prepares to sell shares in an initial public offering later this month, according to a person with direct knowledge of the matter. The investment in the asset management unit by a company from outside China could be unveiled as soon as Sunday, along with details on the IPO’s size and pricing, the person said, asking not to be identified as the deal is private. No final agreement has been reached and the deal could yet fall apart, the person said. A DWS spokesman declined to comment.
- The rise of the smartphone almost broke Tze-Mon Chuang’s company — Elon Musk provided its salvation. Singapore-based Memtech International Ltd. has more than doubled its market value in the past year thanks to tie-ups with the likes of Tesla Inc.The manufacturer is a key supplier to Musk’s pioneering auto company, making plastic components for its battery packs.
- Asian currencies may be on the verge of a correction after completing the best year in at least two decades. The warning sign? Indonesia’s rupiah slumped to a two-year low last week. The rupiah is seen as a bellwether of sorts for Asia given the high foreign ownership of the nation’s bonds. The currency is typically among the first in the region to be sold when sentiment sours, and this often heralds a broader decline among its peers.
- Toyota Motor Corp. announced plans to drop diesel models from its European portfolio this year even as Volkswagen AG, which sparked the fury over the technology, predicts a rebound. The diverging views of the world’s two largest automakers reflects the uncertainty over the future of diesel, which has faced a steady drumbeat of bad news since Volkswagen’s cheating scandal erupted in September 2015. The German auto giant is expecting consumers to forgive and forget soon, as cleaner diesels hit the streets.
- Italy is long used to managing political instability, but giving birth to the country’s 65th government since World War II looks a particularly tough order. With the election producing a hung parliament, the prospect of extended political gridlock hangs over the euro-area’s third-biggest economy. Italy still has a government, because Paolo Gentiloni remains premier. Expect three weeks of public posturing — and of back-room dealings — before parliament reconvenes on March 23. That’s when lawmakers will pick new speakers for the lower house and the Senate, offering the first clue to new alliances.
- Target Corp.’s bid to overhaul the company and better compete with Amazon.com Inc. and a resurgent Walmart Inc. is taking a toll on profit. The retailer posted fourth-quarter earnings that fell short of analysts’ estimates. Target also is spending more to deliver online orders — part of its push to catch up in e-commerce.
- As lawmakers meet this week to cement Xi Jinping’s power at home, China’s president is also looking to boost his country’s military might abroad. He’s overhauled China’s military to challenge U.S. supremacy in the Indo-Pacific, most visibly with a plan to put half-a-dozen aircraft carriers in the world’s oceans. Still, Xi has a problem: He needs bases around the world to refuel and repair his global fleet. So far, China only has one overseas military base, compared with dozens for the U.S., which also has hundreds of smaller installations.
*All sources from Bloomberg unless otherwise specified