By MacNicol & Associates In Morning Notes
November 28th, 2017
Daily Market Commentary
- The Bank of Nova Scotia has made a binding $2.2 billion offer to buy Banco Bilbao Vizcaya Argentaria SA’s Chilean bank to double its stake in the country as the lender seeks to grow in Latin America. BBVA intends to accept the offer for its 68.2 percent stake in the unit and Scotiabank will proceed with a bid for the remaining shares, Spain’s second-biggest lender, said in a statement on Tuesday. It has informed the Said family, owner of 31.6 percent of the unit, that it can exercise a right of first refusal over the shares or sell its stake to Scotiabank under the same terms.
- Bank of Nova Scotia is proving to be no pushover on its home turf. Canada’s third-largest lender had record annual profit of C$4.06 billion ($3.17 billion) from domestic banking, aided by 12 percent growth in the final quarter, according to a statement Tuesday. It’s the third time this year that the Scotiabank unit, which also includes wealth management, has set a new benchmark. More than half of the firm’s total profit comes from that division.
- Canadian heavy crude prices strengthened for the first time in two weeks after TransCanada Corp. said its Keystone pipeline will resume service Tuesday, allaying concerns about rising supplies in Alberta. The discount between Western Canadian Select, the benchmark for heavy oil-sands crude, and West Texas Intermediate futures narrowed 25 cents to $17 a barrel after growing to $17.60 earlier in the day, the widest in more than two years, data compiled by Bloomberg showed. TransCanada said its 590,000 barrel-a-day pipeline that delivers Canadian crude to the U.S. would resume on Tuesday at reduced pressure after it was shut Nov. 16 because of an oil spill.
- TransCanada Corp. asked Nebraska regulators for a chance to amend its Keystone XL project in light of the panel’s last-minute decision to alter the pipeline route in the state. With the uncertain fate of Keystone XL looming, TransCanada plans to update investors on its operations and strategy in Toronto on Tuesday. The event isn’t likely to offer much clarity on what’s next for the Keystone XL investment that’s come to define the company for most of the past decade. Just Monday, TransCanada said it’s still reviewing the Nebraska ruling and what it may mean in terms of dollars and delays.
- European stocks advance as a rise in energy and retail shares offsets a retreat in miners and real-estate companies. The Stoxx Europe 600 Index gains 0.2%. Royal Dutch Shell Plc is among the best performers on the gauge, rising 1.9% after the company said it will stop paying dividends in shares for the first time since 2015 and reiterated a plan to buy back at least $25b of shares from 2017 to 2020.
- As U.S. stocks keep hitting record highs, their Old World counterparts look increasingly attractive. After a 16 percent surge in the S&P 500 Index this year — more than double the Stoxx Europe 600 Index’s advance — the valuation gap between American and European shares has reached its widest level since April 2009.
- Asian stocks declined for a second day as investors turned cautious after reports that North Korea may be preparing a missile launch. The MSCI Asia Pacific Index lost 0.1 percent to 172.13 as of 4:45 p.m. in Hong Kong, led by material stocks such as BHP Billiton Ltd. Japanese stocks dropped as the yen unwound gains spurred by North Korea reports. Stocks in South Korea gained.
- Oil extended its decline below $58 a barrel before OPEC and its allies meet this week to discuss prolonging their output cuts beyond March. Futures dropped as much as 1 percent in New York after losing 1.4 percent Monday. Uncertainty over the outcome of Thursday’s meeting is creating the risk of a slide in prices, which have gained on assumptions that the curbs will be prolonged for nine months, according to Goldman Sachs Group Inc. OPEC backs such an extension but is still waiting for commitments from Russia, according to people familiar with the matter.
- Gold futures climbed above $1,300 an ounce for the first time in six weeks as the dollar wavered and investors braced for an onslaught of economic data and political news. Bullion rose for the third time in four days as a gauge of the dollar traded close to the lowest since September. A report later this week is forecast to show the Fed’s preferred gauge of inflation slowed in October, after Chair Janet Yellen cautioned last week that raising rates too quickly risks stranding inflation below the central bank’s target.
- The Bank of England may increase a key financial safety measure for a third time because it’s worried that a combination of a disorderly Brexit and a global recession could be enough to put the brakes on lending. The central bank is going ahead with a planned increase in the countercyclical capital buffer to 1 percent from 0.5 percent, and said Tuesday it will review the level again early next year, citing the “overall risk environment.” It also revealed that all U.K. lenders passed stress tests for the first time since it started the annual exercise.
- Come January, the team that manages $18 billion at Huntington Bancshares Inc. will be looking for an oil producer that isn’t borrowing money to fund 2018 drilling. Then they may add it to this year’s top pick, cash-flow positive EOG Resources Inc. Guided by forecasts of oil at $45 to $55 a barrel and analyst predictions of slower earnings growth next year in the energy space, Huntington’s John Augustine has gotten picky, shifting its focus from behemoths like Exxon Mobil Corp. and Chevron Corp. Though Huntington still owns those companies, it’s looking for smaller drillers that can grow more rapidly. Energy represents 7 percent to 9 percent in the firm’s three managed portfolios.
- Temasek Holdings Pte is exploring a sale of its stake in Asian drug distributor Zuellig Pharma, people familiar with the matter said. The Singapore state investment firm has been speaking with advisers about a potential sale of its 20 percent interest in Zuellig Pharma, which commands vast pharmaceutical distribution networks in about a dozen Asian markets, according to the people. Temasek may seek around $1 billion for its holding in the Singapore-based company, the people said, asking not to be identified because the discussions are private.
- The Trump administration is holding its one public hearing on rolling back President Barack Obama’s regulations limiting carbon emissions from power plants — and it will be in West Virginia. While the Environmental Protection Agency leadership under Obama steered clear of the coal-producing state, the agency will hold a public hearing on dismantling Obama’s climate rule in Charleston, West Virginia on Tuesday and Wednesday. That will give coal miners and executives easy access to weigh in on the plan to repeal the Clean Power Plan, which would have forced utilities to burn less coal. The plan aroused particular resistance in coal-producing states such as West Virginia.
- Royal Dutch Shell Plc will pay its entire dividend in cash for the first time in more than two years as Europe’s biggest oil company seeks to demonstrate it has left the worst of the crude slump behind. From this quarter, Shell will no longer offer shareholders the option to take the payout in stock, it said Tuesday. The company paid about $16 billion in dividends in the past year, of which about $4 billion was in shares. It also reiterated plans to buy back at least $25 billion of stock by 2020, subject to further debt reductions and a continued recovery in oil prices.
- Jerome Powell is stepping out from the shadows. After five years of loyally supporting his bosses Janet Yellen and Ben Bernanke, the nominee to be the next chairman of the Federal Reserve has a chance to lay out his own vision for the U.S. central bank. While he may politely decline to reveal too much, the 64-year-old former private equity executive must endure several hours of interrogation during his Senate confirmation hearing Tuesday in Washington. Proceedings will get underway with Powell’s opening remarks at 9:45 a.m.
- SoftBank Group Corp. and a group of investors are trying to buy a stake in Uber Technologies Inc. at a sizable discount to the company’s $69 billion valuation, seeking to clinch what would be one of the largest purchases of stock in a private company. SoftBank and partners including investment firms Dragoneer Investment Group and General Atlantic are offering to spend more than $6 billion for a stake that would value the ride-hailing company at $48 billion, or about 30 percent lower than the valuation it fetched in its most recent round of fundraising, according to people familiar with the deal.
- All OPEC members support extending their oil production cuts until the end of 2018, although Russia hasn’t yet committed to the proposal before Thursday’s meeting in Vienna, said people familiar with the matter. While Russia and the Organization of Petroleum Exporting Countries have crafted the outline of a deal to continue their curbs for nine months beyond the current end-March expiry, Moscow still has concerns that supporting oil prices above $60 a barrel will help U.S. shale rivals, the people said, asking not to be identified because the information is private.
- Societe Generale SA, seeking to restore growth and profitability, will deepen job cuts at its French consumer bank and take exceptional charges of about 570 million euros ($678 million) against fourth-quarter earnings. As many as 900 reductions may take place as the domestic retail banking business cuts branch numbers, resulting in a charge of about 400 million euros, SocGen said in a statement. That’s on the top of the 2,550 positions the bank has already said it will eliminate. SocGen will book another exceptional expense related to three tax changes.
- Gaw Capital Partners and Goldman Sachs Group Inc. are part of a consortium buying a portfolio of shopping malls in Hong Kong from Link Real Estate Investment Trust for HK$20 billion to HK$25 billion ($2.6 billion to $3.2 billion), according to people familiar with the matter. Gaw will be the largest investor in the deal, while Goldman Sachs will take a less than 20 percent stake in the assets, said one of the people, who asked not to be identified because the agreement hasn’t been announced. The portfolio comprises 17 malls, including in Kowloon and Hong Kong’s New Territories, the South China Morning Post reported earlier on Tuesday.
- Anglo-Dutch consumer-goods giant Unilever wants to consolidate its headquarters in the U.K. or the Netherlands, but Brexit is making it harder to choose. The maker of Ben & Jerry’s ice cream and Dove soap said in a statement that a review of the dual structure is “progressing well,” after Chief Executive Officer Paul Polman told the Financial Times he would advocate delaying the decision because of a “moving playing field — with political turbulence out there.”
- British Airways owner IAG SA chose Paris as a second base for its discount airline Level, which will offer transatlantic flights to destinations like New York and the Caribbean as carriers compete to lower prices on longer routes. Chief Executive Officer Willie Walsh unveiled the plan Tuesday in the French capital, which won out over Rome for the designation.
- As the U.S. and Europe grow increasingly outraged over the Rohingya refugee crisis in Myanmar, Asian businesses are continuing to invest. Bangkok-based construction company TTCL Pcl is one of the latest examples, targeting the first half of next year to complete a funding plan and shareholder structure for a planned $3 billion coal-fired power plant in Kayin state bordering Thailand.
- Mercedes-Benz, conducting the biggest test using drones to ship everyday items like ground coffee and cellphones, said the mini aircraft completed 100 drop-offs to strategically placed vans in Zurich with a perfect safety record and more deliveries are planned for next year. About 50 individual customers placed orders with Swiss online shopping platform Siroop, choosing “airmail deals” from selected items from retailer Black & Blaze Coffee Roasting Co. for same-day delivery. The drones then flew to four fixed points in the city, covering a distance as far as 17 kilometers (11 miles) to land on the roofs of specially adapted Mercedes-Benz Vito vans. The parcel is carried by road for the final stretch, before the drones return.
*All sources from Bloomberg unless otherwise specified