By MacNicol & Associates In Morning Notes
May 10th, 2018
Daily Market Commentary
- Canadian stocks closed at the highest level since January as crude passed $71 for the first time since 2014. The S&P/TSX Composite Index added 68 points or 0.4 percent to 15,910.81. Energy shares rose 1.1 percent as U.S. crude stockpiles shrank and President Donald Trump walked away from a nuclear deal with Iran. Kinross Gold Corp. was the biggest decliner on the benchmark, tumbling 11 percent, the most since October 2016, amid uncertainty in both Mauritania and Ghana. The materials sector rose 0.2 percent.
- Canadian Tire Corp. agreed to buy Helly Hansen for C$985 million ($770 million) from the Ontario Teachers’ Pension Plan, adding a global maker of outdoor clothing to the Canadian retailer’s diverse product lines. The company will also take on C$50 million of operating debt, according to a statement from the Toronto-based retailer Thursday. The acquisition builds on the 2011 purchase of Forzani Group, the owner of the Sport Chek chain, which helped the 96-year-old company diversify away from automotive and home goods and capture younger customers with sporting goods and outdoor gear.
- An investment arm of a Canadian public pension plan agreed to buy U.K. outsourcing firm Alexander Mann Solutions Ltd. for 820 million pounds ($1.1 billion). Omers Private Equity, part of the pension plan for municipal employees in the province of Ontario, Canada, will buy the London-based business from New York-based New Mountain Capital LLC, according to a statement Thursday.
- While the rally in oil prices threatens to be a drag on global growth, it’s a good thing for Canada, the world’s fourth largest producer. Yet whether the benefits are large enough to make a big difference is an open question, given doubts around the sustainability of the price increases and obstacles to investment like rail and pipeline constraints. While more expensive oil should reinforce expectations that borrowing costs are eventually going higher, most economists predict little impact on growth, and views are mixed on what it means for the Bank of Canada’s projected rate-hike path in the near term.
- European stocks are little changed after their longest winning streak since mid-March as traders weigh profit updates and the increased likelihood of a populist government in Italy. The Stoxx 600 drops 0.1%, with equity markets closed for a holiday in several countries including Switzerland, Sweden and Austria.
- The dollar gave up some of its recent gains on Thursday, declining as traders confronted a range of catalysts from political risks to missiles in the Middle East. Ten-year Treasury yields, which have been driving up the greenback and exacting pain on emerging markets, dipped back below 3 percent to push the dollar toward its first drop in five days.
- Calm has settled over the MSCI Asia-Pacific Index, with the gauge moving within 4.3 points over the past month — the tightest range since August. That contrasts with markets in Europe and the U.S., where the Stoxx Europe 600 Index has rebounded more than 4.5 percent and the S&P 500 Index has climbed 3.2 percent.
- Oil extended its three-year high as tensions in the Middle East flared following the U.S. decision to renew sanctions on Iran, OPEC’s third-largest producer. Futures in New York added as much as 1.1 percent, reaching the highest level since November 2014. Israel said it struck Iran’s military facilities in Syria after a barrage of missiles was fired by Iranian forces at the Golan Heights. Prices jumped 3 percent Wednesday after U.S. President Donald Trump said he would scrap a 2015 nuclear deal between Iran and world powers, and reimpose restrictions on the Islamic Republic’s crude exports.
- Gold holds its range near 200-day moving average as the dollar declines and Mideast tensions rise after Israel attacks Iranian targets in Syria in retaliation for missile strikes on the Golan Heights.
- The Bank of England kept interest rates on hold after a first-quarter economic slump and forecast that inflation will slow to its target faster than previously anticipated. The Monetary Policy Committee voted 7-2 to hold at 0.5 percent, as predicted by all but three of 54 economists in a Bloomberg survey. Ian McCafferty and Michael Saunders reiterated their support for an immediate increase. The decision ends a roller-coaster ride for investors who had expected a hike until a few weeks ago, when data revealed a near standstill in economic growth and slower-than-expected inflation. While the BOE keeps alive the prospect of a rate increase later this year, its statement suggests a gentle tightening pace.
- China’s Hisense Group Corp is seeking to take over appliance maker Gorenje d.d., a key Slovenian exporter. Gorenje shares soared the most on record. The 67-year-old Gorenje, one of Slovenia’s best-known brands, employing about 11,000 people, has been looking for a partner to help it boost sales and profits. Panasonic Corp. dropped out of a deal for the producer of refrigerators, stoves, ovens and other appliances in 2016.
- President Donald Trump’s decision to scrap the Iran nuclear deal and restore sanctions was great for oil bulls. But for natural gas drillers in America’s hottest shale play, it could be a disaster in the making. The highest oil prices in more than three years are poised to boost output from areas like West Texas’ Permian Basin, the most prolific U.S. reservoir of the fuel. That would add to the supply of gas that’s produced alongside crude there, making an existing glut even bigger.
- Israel said it struck most of Iran’s military facilities inside Syria overnight after Iranian forces there fired a barrage of missiles at the Israeli-held section of the Golan Heights, a major escalation between the two Middle East foes on a highly volatile frontier. Oil prices rose after the strikes but Israel moved quickly to calm concerns that they were the opening salvo in a wider war.
- Takeda Pharmaceutical Co.’s credit rating was downgraded by Moody’s Investors Service one day after the Japanese drugmaker said it had reached a deal to buy larger rival Shire Plc for about $62 billion. Takeda’s debt rating was cut to A2 from A1 on Wednesday, bringing it down one notch to the sixth-highest investment-grade level. The new rating is under review for further downgrades, Moody’s said in a statement, calling the scale of the Shire transaction “extraordinary.”
- Alstom SA has agreed to exercise its options to sell interests in three energy joint ventures to General Electric Co. for 2.59 billion euros ($3.07 billion) as part of its refocus on the railway industry. The transfer of the renewables, grid and nuclear businesses will occur on Oct. 2, Alstom said in a statement on Thursday. Alstom and GE set up the ventures in 2015 as part of GE’s $10.3 billion acquisition of the French company’s energy business under former Chief Executive Officer Jeffrey Immelt. Alstom intended to exit the businesses as concentrated on the manufacturing of rail equipment. The 2015 deal tightened GE’s grip on the business of servicing and maintaining gas turbines, while adding joint ventures in renewable energy and electrical transmission businesses.
- Royal Bank of Scotland Group Plc cleared one of the last barriers keeping the U.K. from reducing its stake in the lender and resuming dividends after it reached a tentative deal to pay $4.9 billion to resolve a U.S. mortgage probe. Top executives said the U.K.’s biggest government-owned bank will begin discussions with British regulators about restarting dividends after a decade.
- Walmart Inc. will comply with any tax demand arising from its purchase of a stake in India’s e-commerce leader, a move that could help the global giant avoid festering litigation that overseas companies such as Vodafone Group Plc face in the South Asian nation. “Our intent is, whether looking backwards related to our acquisition here or looking forward, we will be compliant with whatever the tax rules are,” Walmart Chief Executive Officer Doug McMillon told reporters in New Delhi. The world’s biggest retailer led a group that bought a 77 percent stake in Flipkart Online Services Pvt. in a deal valuing the Indian company at about $21 billion.
- Mahathir Mohamad appeared set to become Malaysia’s prime minister once again after dealing Najib Razak’s ruling coalition a stunning defeat, cementing the country’s first transfer of power in six decades. Mahathir, Malaysia’s longest-serving premier, saw his four-party opposition bloc win a parliamentary majority in an election on Wednesday that rattled investors, many of whom bet on a Najib victory. The 92-year-old politician has pledged to step aside after opposition leader Anwar Ibrahim is released from prison in June.
- Donald Trump’s election as the ultimate outsider in 2016 sent companies scrambling to understand the new president. A handful turned to an unconventional place for help: his longtime fixer and New York lawyer, Michael Cohen. The payments by AT&T Inc. and Novartis AG to Cohen show how even companies with robust lobbying operations sought knowledgeable insiders to glean insight into Trump’s Washington — using backdoor channels that may not be illegal, but have now drawn the scrutiny of Special Counsel Robert Mueller, who is investigating Trump’s campaign.
- A record valuation and increasingly bullish predictions from Wall Street have made Nvidia Corp.’s earnings report on Thursday one of the most anticipated of the season. Nvidia has added almost $18 billion to its market value over the past five sessions with a steady climb that left shares trading at their highest in the company’s 19-year history. Whether the stock can extend that streak will hinge on the performance of Nvidia’s gaming and data center businesses, which account for about 80 percent of revenue. The chipmaker is expected to forecast fiscal second quarter revenue of $2.95 billion, up 32 percent from the year-ago period, according to an average of analyst estimates compiled by Bloomberg.
- California just mandated that nearly all new homes have solar, starting in less than two years. Now, it’s going to have to figure out what to do with all of that extra energy. Already, the state is flooded with so much solar power during the day that it has to turn off some of its sun-fueled plants at times and often needs to ship excess green energy to neighboring states. The phenomenon has produced what state grid operators have been calling the duck curve — that’s when net power demand craters during daylight hours and then ramps up after sunset and natural-gas generators fire up to meet customer demand.
- The ongoing surge in volcanic activity on Hawaii’s Big Island soon could cause a massive explosion from a volcano’s summit, scientists and Hawaii officials warned Wednesday. Kilauea, the longest-erupting volcano on the planet, has displaced some 1,700 people and destroyed 36 structures since a shifting flow of underground magma last week burst through the surface in a residential neighborhood about 40 miles from the top of the volcano, unleashing torrents of molten rock and toxic gases.
- With corporate-debt defaults on the rise, China’s securities regulator will probe bond funds to ensure that they have proper risk controls in place, according to people familiar with the matter. The China Securities Regulatory Commission’s investigation will include whether individual firms’ funds are shuffling high-risk bonds between them, said the people who asked not to be named as the discussions aren’t public. One suspicion is mutual-fund companies may be motivated to beautify their holdings to avoid a mass withdrawal by investors, the people said.
- BT Group Plc pledged to cut 13,000 jobs as part of a cost purge that failed to impress investors, who focused instead on the bleak sales outlook and lack of free cash flow growth, driving the stock down the most in 15 months. The former phone monopoly, facing price cuts mandated by regulators, political pressure to invest in faster broadband and rising inflation, forecast a flat dividend and a 2 percent revenue decline next fiscal year alongside a drop in earnings and free cash flow, as it boosts spending on fiber.
- Wells Fargo & Co. is adding a new tool to make its mobile app easier to use as the bank tries to keep Silicon Valley innovators from stealing more customers. “Pay with Wells Fargo” will be an option on the app’s home screen that lets customers select their most commonly used features, such as the peer-to-peer payment service Zelle, before logging in. The company’s head of payments, virtual solutions and innovation, Avid Modjtabai, will unveil the new technology Thursday at the bank’s Investor Day, according to a statement reviewed by Bloomberg News.
*All sources from Bloomberg unless otherwise specified