By MacNicol & Associates In Morning Notes
May 7th, 2018
Daily Market Commentary
- Canadian stocks rose for a fourth week, the longest streak of gains since November, hitting their highest close since Feb. 1. The S&P/TSX Composite Index added 108 points or 0.7 percent to 15,729.40 Friday, bringing its weekly gain to 0.4 percent. All sectors were in the green, led by a 1.5 percent gain in industrials. Bombardier Inc. added 3.3 percent, reaching the highest since 2015, after Thursday’s land sale and strong results.
- Bank of Montreal plans to start offering actively managed ETFS but will avoid the exotic niches that some of its competitors offer. “We are exploring actively managed ETF strategies right now as long as we can stay true to the values of the ETF: good liquidity, the right amount of transparency, the right pricing,” said Kevin Gopaul, head of quantitative strategies and exchange-traded funds at BMO Asset Management Inc., Canada’s second-largest ETF provider. An entry into the market could come this year or next, he said.
- Cabinet-level negotiators from the three Nafta nations meet again in Washington this week to attempt a breakthrough on the trade deal in May. It won’t be easy. Several contentious issues remain unresolved after more than eight months of talks between the U.S., Mexico and Canada to renegotiate the North American Free Trade Agreement. Discussions last took place in late April and will resume Monday, with U.S. Trade Representative Robert Lighthizer expected to host Mexico’s Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland. Despite insisting that he wants to secure a deal in the coming weeks, Lighthizer hasn’t shown signs of softening on proposals that Canada and Mexico see as damaging to their interests. Guajardo and Freeland, meanwhile, have pledged not to back down.
- European stocks nudged upward following a muted Asian session, and oil extended recent gains to hit another milestone. The Stoxx Europe 600 Index extended Friday’s increase as most national gauges in the region advanced. Trading volumes were lighter than usual thanks to a holiday in the U.K.
- Geopolitics remain in focus this week with President Donald Trump saying he’ll decide by May 12 whether the U.S. stays in or pulls out of the Iran nuclear deal. Earnings season continues, and on the economic front traders will watch out for an expected acceleration in U.S. consumer prices.
- In Asia, shares climbed in Australia and jumped in Shanghai. U.S. futures advanced. The yen fell as Japanese traders returned from holidays, while the euro also weakened.
- U.S. oil rose above $70 a barrel for the first time since November 2014 as traders braced for a re-imposition of U.S. sanctions on Middle East crude producer Iran. Futures in New York and London jumped as much as 1.4 percent. While U.S. President Donald Trump has threatened to pull out of a deal between Iran and world powers as a May 12 deadline nears, he’s signaled he’ll be open to negotiation. The 2015 accord eased sanctions on OPEC’s third-largest member in exchange for curbs on its nuclear program, and renewed American measures may constrain the Persian Gulf nation’s crude exports.
- Gold edges lower as dollar gains while investors eye U.S./Iran tensions and stalemate in U.S./China trade talks.
- Starbucks Corp. is giving Nestle SA a shot at revitalizing its global coffee business. In the third-biggest transaction in Nestle’s 152-year history, the Swiss food giant will spend $7.15 billion for the right to market Starbucks-branded products from beans to capsules, marrying its international distribution network with the allure of arguably the biggest name in java. Nestle won’t get any physical assets in the deal. Instead, Chief Executive Officer Mark Schneider is harnessing the name recognition of Starbucks, with its 28,000 outlets around the globe and massive draw in the U.S. Nestle has struggled there for years with its own products like Nespresso and Dolce Gusto.
- The European Central Bank warned that a rise in trade protectionism would undermine the global economy, and said the U.S. would be among the worst-affected. The cautionary comments coincide with data showing factory orders in Germany unexpectedly slid for a third month in March, another sign of the weakness that’s dogged the euro-area economy since the start of the year. Separate reports showed investor confidence in the currency bloc fell for a fourth month and a retail gauge suggested that sales contracted for the first time in more than a year.
- Iran, faced with a possible restoration of U.S. sanctions, came out against higher oil prices, signaling a split with fellow OPEC member and political rival Saudi Arabia, which is showing a willingness to keep tightening crude markets. A “suitable price” for crude is $60 to $65 a barrel, Amir Hossein Zamaninia, deputy oil minister for international and commercial affairs, said in an interview Sunday in Tehran. Oil Minister Bijan Namdar Zanganeh said earlier in the day that Iran supports “reasonable” oil prices and is not an advocate of costlier crude.
- A struggle that will dictate the future of financial markets is brewing. Long beleaguered Libor is fighting to preserve its status as the premier global benchmark for dollar-based assets just as questions pile up over the credibility of its presumptive heir. It’s a clash with few equals in financial history. In one corner, the much maligned set of London-based rates that, even after being tainted by rigging scandals, still underpin more than $370 trillion of instruments across various currencies. In the other, a potential successor, conceived over the past four years by the Federal Reserve Bank of New York and the Fed Board of Governors, as well as a who’s who of Wall Street titans, from JPMorgan Chase & Co. and Goldman Sachs Group Inc. to BlackRock Inc.
- Billionaire Charlie Ergen, accustomed to doing things his way, is looking more alone in an era of phone and media consolidation. Dish Network Corp.’s co-founder and chairman has grand plans to deliver video over a vast new wireless network. He’s acquired airwaves worth as much as $40 billion and has built Sling TV into the most popular live online TV service in the U.S. But finding a wireless partner has always been a crucial part of those plans. Turning vacant airwaves into a working network is costly and, as Ergen has made clear, not something Dish wants to do by itself. With Sprint Corp. and T-Mobile US Inc. merging, the options may narrow to the biggest wireless providers — Verizon Communications Inc. and AT&T Inc. — or a big tech company eager to get into mobile and entertainment.
- Utilities that operate U.S. nuclear reactors are cutting back on uranium purchases, citing concerns that the Trump administration may impose trade barriers that would disrupt the market. U.S. producers Ur-Energy Inc. and Energy Fuels Inc. petitioned the administration in January to cap imports. While the Commerce Department has yet to say whether it will open an investigation, the prospect of an import quota on the horizon has made U.S. buyers wary of signing contracts now with international suppliers, according to Nima Ashkeboussi, a director at the Washington-based trade group Nuclear Energy Institute.
- Blackstone Group LP agreed to buy Gramercy Property Trust, a U.S. investor in industrial real estate, for $7.6 billion in cash. Blackstone will pay $27.50 for each Gramercy share, a 15 percent premium over the closing price on May 4, according to a statement Monday. Gramercy shareholders will be entitled to receive the previously announced second-quarter dividend of $0.375 per share payable on July 16.
- Not long after U.S. authorities filed sealed charges against Volkswagen AG’s old chief executive officer, they granted the new CEO a rare safe-passage deal. The Justice Department agreement allows Herbert Diess, promoted last month to lead the German automaker, to travel the world freely without fear of being arrested in connection with the U.S.’s diesel-rigging investigation, according to two people familiar with the matter.
- Air France-KLM Group tumbled in Paris trading as Europe’s biggest airline battles turbulence triggered by Chief Executive Officer Jean-Marc Janaillac’s resignation and a deepening labor conflict. The stock dropped as much as 14 percent, the most since 2002. Even before today, the shares had lost 40 percent in value this year, making it the worst performer on the 26-member Bloomberg World Airlines Index.
- The time is at hand for President Donald Trump to decide whether the U.S. remains in the Iran nuclear deal, and interested parties are making their final pitches. Israeli Prime Minister Benjamin Netanyahu said Sunday that the 2015 accord is fatally flawed and must be “fully fixed or nixed” to stop Iranian aggression sooner than later. His comments came as Iranian President Hassan Rouhani warned that the U.S. would face “historic” regret if it pulled out.
- Indonesia’s economy expanded at a slower pace last quarter than economists had forecast, a setback for the government after eight interest rate cuts in the past two years. The currency fell to the lowest since 2015.
- Vladimir Putin was sworn in for the fourth time as president, promising Russians an “economic and technological breakthrough” in his new six-year term amid the deepest standoff with the West in decades. He’s expected to reappoint his longtime ally Dmitry Medvedev as prime minister as early as Monday in what would be a strong signal of continuity despite a disappointing economic performance. To help rebuild economic links with the U.S. and Europe sundered by sanctions imposed since 2014, Putin is considering appointing Alexei Kudrin, a former finance minister revered by investors for the pro-market overhauls he led in the Russian leader’s first two terms, to a new post to lead efforts to revive economic growth, according to officials familiar with the plans.
- International Flavors & Fragrances Inc. agreed to buy Israeli flavor maker Frutarom Industries Ltd. for $7.1 billion including debt in what’s set to be the largest deal yet in the rapidly-consolidating food flavoring industry. In acquiring Frutarom, a creator of alfalfa and wild cherry bark flavors, New York-based IFF is tapping into the fast-growing market for natural food ingredients. Under the cash and stock combination, shareholders of Frutarom will receive the equivalent of $106.25 per share, according to a joint statement on Monday.
- Deutsche Lufthansa AG’s costs related to the takeover of most of the defunct budget carrier Air Berlin are skyrocketing. Lufthansa had called the deal to acquire Air Berlin planes and airport slots an opportunity-of-a-lifetime to bolster its domestic business. Yet recent comments from executives show the outlay from unexpected jet maintenance and the leasing of replacement aircraft has led the price tag to spiral beyond initial estimates.
- North Korea said U.S. sanctions aren’t the reason behind its willingness to remove nuclear weapons from peninsula, accusing its adversary of trying to ramp up tensions ahead of a summit between leaders of the countries. The U.S. is misleading the public by saying its sanctions are working, KCNA said on Sunday. America isn’t being helpful if it continues to characterize North Korea’s steps as a sign of weakness, while pressuring and making military threats, the North’s state-run news agency said.
- What goes up must come down, in credit markets as in physics, and Royal Bank of Canada is positioning itself for the inevitable market downturn. Canada’s largest lender by assets is boosting its U.S. leveraged-finance business to capitalize on a red-hot market for riskier wagers, according toJim Wolfe, global head of leveraged finance for RBC Capital Markets. Royal Bank hired Keith Murray from BNP Paribas SA in January to lead a newly fortified team that will focus on lending to small and midsize companies.
- Goldman Sachs Group Inc. is selling cybersecurity software it developed to a company that specializes in that market in exchange for an equity stake. LookingGlass Cyber Solutions will buy the Sentinel platform from Goldman Sachs, according to executives at both companies. The software combines intelligence — gathering data on potential threats — with investigation of possible breaches, a combination that makes it attractive to other financial institutions, the executives said, declining to provide more details on the terms of the transaction.
- One of Hong Kong’s most popular investment strategies — borrow big and plow the money into a red-hot IPO — is starting to fail, just as the city prepares to host Xiaomi Corp.’s $10 billion listing. Ping An Healthcare & Technology Co.’s initial public offering flopped after the retail tranche was more than 600 times oversubscribed. That dealt a blow to anyone hoping to flip the stock — a move that proved profitable last November when China Literature Ltd. surged as much as 100 percent on its first day.
*All sources from Bloomberg unless otherwise specified