By MacNicol & Associates In Morning Notes
November 29th, 2017
Daily Market Commentary
- Canadian stocks declined a second day as Bank of Nova Scotia fell the most in seven months, weighing on financials. The S&P/TSX Composite Index lost 12 points or 0.1 percent to 16,029.64. Canada’s third-largest lender fell 2.1 percent after 4Q profit and revenue missed estimates on a slump in capital markets activity. The financial index lost 0.2 percent.
- Royal Bank of Canada is seeing a step back in corporate lending after spending the first half of the decade pushing to gain more large clients. The bank’s corporate-loan book has shrunk to C$83 billion ($64.6 billion), its lowest since the third quarter of 2015, according to financial results released Wednesday. That’s down from its peak of C$89.7 billion in the first quarter of 2016. Fourth-quarter net income rose 12 percent to C$2.84 billion, or C$1.88 a share, from C$2.54 billion, or C$1.65, a year earlier. Royal Bank said adjusted earnings were C$1.92 a share, beating the C$1.87 average estimate
- The Canadian government notified the World Trade Organization that it will seek dispute consultations regarding the U.S. Commerce Department’s anti-dumping and countervailing duties on softwood lumber imports. Earlier this month, Commerce imposed average countervailing duties of 14.25 percent and anti-dumping duties of 6.58 percent on Canadian imports of softwood lumber, siding, flooring, and other coniferous wood products. The request for WTO consultations marks the latest stage in a decades-long disagreement between Canada and the U.S., which alleges that Ottawa unfairly subsidizes Canadian lumber production.
- European stocks rise, tracking a rally on Wall Street as optimism over the U.S. tax bill overshadows North Korea’s latest missile test, while a deal between British and European Union negotiators over a Brexit divorce bill boosts the pound and weighs on U.K. shares. The Stoxx 600 gains 0.7%, reaching a one-week high and testing its 50-DMA, while the FTSE 100 falls 0.5%. The U.K. benchmark typically has an inverse relationship with the pound as its members get 3/4 of their revenues from outside the country.
- Japanese stocks rose as equity investors were unfazed by North Korea’s latest missile launch. The Topix index gained 0.8 percent to close at 1,786.15, more than erasing Tuesday’s dip after media warned of signs that North Korea was preparing for a launch. Traders were undaunted by the actual firing of the missile on Wednesday morning, the country’s first in two months.
- Oil dropped for a third day as U.S. industry data showed crude stockpiles expanded and as OPEC ministers arrive in Vienna to decide on prolonging supply cuts past the end of March. Futures lost as much as 0.9 percent in New York after falling 1.6 percent the previous two sessions. U.S. crude inventories rose by 1.82 million barrels last week, the American Petroleum Institute was said to report, even as it noted a large decline at the storage hub in Cushing, Oklahoma.
- Gold’s whipsaw trading ended in a whimper, once again. Bullion closed little changed Tuesday after fluctuating for much of the session amid President Donald Trump’s tweet on U.S. budget talks and a slew of economic data and tax news. None of that was strong enough to break gold out of its recent trading range, with a measure of 30-day volatility holding near a seven-year low reached in August as traders weigh political uncertainty that’s boosted haven demand against signs of better economic growth.
- A liquefied natural gas glut that has been one of the industry’s main talking points for four years now looks to be smaller than first thought. Unprecedented new volumes from multibillion dollar plants starting in Australia, the U.S. and Russia have been a focal point for traders from Royal Dutch Shell Plc and Vitol Group to analysts at the International Energy Agency. Record-high Chinese LNG imports and increased demand in parts of Europe threaten to delay, diminish and shorten the anticipated oversupply.
- Iron ore will weaken next year as global supplies increase including from a new mine in Brazil at the same time that steel production risks topping out in China, according to Goldman Sachs Group Inc., which expects prices to decline back toward $50 a metric ton. The raw material may fall to $60 a ton in three months, $55 in six and $50 in 12, according to the New York-based bank’s projections, which suggest a second year of lower prices after they dropped in 2017. Benchmark ore with 62 percent content was at $67.92 a dry ton Wednesday.
- U.K.’s Cineworld Group Plc is in talks to purchase Regal Entertainment Group, the movie-theater chain controlled by billionaire Philip Anschutz, for more than $3 billion to double its size and create a bigger international rival to industry leader AMC Entertainment Holdings Inc. The companies are negotiating a price for Regal of $23 a share, they said in separate statements.
- India plans to exclude more than half of the $7.6 billion debt owed by the struggling national airline to help burnish its appeal as Prime Minister Narendra Modi presses ahead with a sale, people with knowledge of the matter said. The government proposes to transfer all of Air India Ltd.’s non-aviation assets and short-term loans of as much as 300 billion rupees ($4.7 billion) to a separate company, readying the airline for prospective buyers, the people said, asking not to be identified discussing confidential information. Authorities aim to kick off the bidding process before March 31, they said.
- Volkswagen AG shares rose to the highest since the diesel-emissions crisis erupted two years ago amid growing signs that the German automaker’s powerful labor unions are open to investor-friendly measures such as possible asset sales and higher dividends.
- Vietnam is seeking to raise at least $4.8 billion in the country’s biggest stake sale as an offering in a state-run brewer attracts potential bidders including Anheuser-Busch InBev NV and Asahi Group Holdings Ltd. The government, which owns almost 90 percent of Saigon Beer Alcohol Beverage Corp., will offer 53.6 percent of the brewer in a Dec. 18 sale, Truong Thanh Hoai, the Industry and Trade Ministry’s head of industry department, said at a briefing on Wednesday in Ho Chi Minh City.
- Microsoft Corp. plans a multibillion-dollar overhaul of its main campus in Redmond, Washington, adding space for 8,000 more workers and creating areas for collaboration and recreation as the company tries to keep up with growth in hiring and trends toward more open office spaces. The five- to seven-year plan will knock down 12 low-rise buildings at the heart of the company’s original headquarters and replace them with 18 new buildings, many of them double the height, President and Chief Legal Officer Brad Smith said in an interview. With the added square footage, the campus’ space will be the equivalent of 180 football fields.
- Tullow Oil Plc completed the refinancing of $2.5 billion of reserves-based lending facilities, striking off one of its main objectives for the year ahead of schedule. The credit facilities are split between a commercial bank loan of $2.4 billion and an International Finance Corp. facility of $100 million, London-based Tullow said Wednesday in a statement. It’s also reducing the commitments of its revolving corporate credit facility to $600 million from $800 million.
- While the Consumer Financial Protection Bureau grabs headlines, another independent U.S. regulator is quietly locked in its own showdown with the Trump administration. The Federal Housing Finance Agency is in deep discussions with the White House over what to do with more than $7 billion owed to the government at year-end by Fannie Mae and Freddie Mac. FHFA officials in negotiations have said they want Fannie and Freddie to keep $2 billion to $3 billion each as a buffer against losses, according to people familiar with the matter.
- Bitcoin surpassed $10,000 for the first time and continued higher, taking this year’s price surge to 11-fold even as warnings multiply that the largest digital currency is an asset bubble. The euphoria is bringing to the mainstream what was once considered the provenance of computer developers, futurists and libertarians seeking to create an alternative to central bank-controlled monetary systems. While the actual volume of transactions conducted in cryptocurrencies is relatively small, the optimism surrounding the technology continues to drive it to new highs.
- North Korean leader Kim Jong Un claimed his regime’s missile launch showed it can strike the U.S. with a nuclear weapon, signaling a new phase in its standoff with President Donald Trump. North Korea “successfully” launched a new type of intercontinental ballistic missile with improved technology that can deliver a nuclear warhead anywhere in the U.S., the state-run Korean Central News Agency said Wednesday. Kim watched the test and “declared with pride that now we have finally realized the great historic cause of completing the state nuclear force,” KCNA said.
- Banco Bilbao Vizcaya Argentaria SA agreed to sell foreclosed real estate assets with a gross book value of 13 billion euros ($15.4 billion) to Cerberus Capital Management LP. Spain’s second largest bank will spin off the assets into a separate company valued at around 5 billion euros and Cerberus will buy 80 percent of the shares in the unit for around 4 billion euros, BBVA said in a regulatory filing today. BBVA and Haya Real Estate SLU, the servicing platform of Cerberus, have formed a joint venture whereby once the deal is closed Haya will act as servicer for real estate assets left on BBVA’s books.
- OPEC and Russia concur on two things: their oil production cuts are working and they should be extended deeper into next year. What’s proving more elusive is an accord on when and how to end the curbs. As ministers gather in Vienna, this unanswered question is the main reason Russia has yet to give its formal assent to a rollover of their agreement until the end of next year, according to people familiar with the matter. Moscow wants clarity about what comes afterward — something the Organization of Petroleum Exporting Countries doesn’t usually provide.
- Talks between Chad, Glencore Plc and a group of banks to restructure more than $1 billion in debt have stalled after the African nation rejected the commodities trader’s latest proposal to delay repayment of an oil-for-cash loan, according to people familiar with the negotiations. The negotiations reached a stalemate after five months of on-and-off talks, with both sides rejecting the other’s offers and counter offers, said the people, who asked not to be identified because the discussions are private.
- Uber Technologies Inc.’s net loss widened to $1.46 billion in the third quarter, according to people with knowledge of the matter, as the ride-hailing leader struggled to fend off competition, legal challenges and regulatory scrutiny. The San Francisco-based company reported financials to shareholders as part of a formal bid Tuesday night from a SoftBank Group Corp.-led consortium looking to buy a large block of stock. SoftBank said in an emailed statement that at least two of Uber’s early backers intend to sell. The sale of those shares would value the business at $48 billion, a 30 percent discount to the last private valuation.
- Prince Miteb bin Abdullah, one of the most senior Saudi royals detained in the kingdom’s corruption crackdown, has been released after reaching a settlement deal believed to exceed the equivalent of $1 billion, an official involved in the anti-graft campaign said. Prince Miteb, who headed the powerful National Guard until earlier this month, was released Tuesday, the official said on condition of anonymity in discussing matters under the supervision of the public prosecutor. At least three other suspects have also finalized settlement deals, the official said. It wasn’t immediately possible to reach Prince Miteb, son of the late King Abdullah, for comment.
- U.K. and the European Union negotiators reached an outline deal on the Brexit divorce bill, clearing a hurdle in negotiations and ramping up pressure to find a compromise on the thorny issue of the Irish border. The pound surged. Negotiators reached a preliminary agreement on the bill that still needs to go to national governments for approval, according to a person familiar with the situation. It’s up to EU leaders to accept the offer or not and they will do that in the run-up to a summit in mid-December. The U.K. government said “intensive talks” are ongoing to “build on recent momentum.”
- Xavier Rolet said he will step down immediately as chief executive officer of London Stock Exchange Group Plc after a weeks-long spat between the board and a hedge-fund activist who demanded he stay in the role. Rolet resigned following a request from the board, and will be replaced in the interim by Chief Financial Officer David Warren, the exchange said in a statement on Wednesday. The LSE also asked activist shareholder TCI Fund Management, which owns 5 percent of the stock, to withdraw its demand for a general meeting. The shares fell as much as 2.4 percent.
- Barclays Plc’s top investment banker has told staff he’ll sharpen divisions in bonuses this year, boosting pay for top performers while cutting it for those in the bottom half, people familiar with the comments said. Tim Throsby, recruited from JPMorgan Chase & Co. in January to turn around the faltering trading division, said those consistently ranked in the lower half should expect to see their compensation shrink, while those in the top quartile will see it grow, according to people briefed on the remarks. The comments were made at a townhall for European staff this month.
- Air France-KLM Group and Jet Airways India Ltd. agreed to deepen an existing partnership with offerings on India-Europe routes together, giving the biggest European airline more seamless access to the world’s fastest growing major aviation market. The latest deal will offer travel options for 44 cities in India and 106 destinations across Europe, Jean-Marc Janaillac, chairman of Air France-KLM said in a statement. In addition, another partnership between the European group and Delta Air Lines Inc. will help connect India to a trans-Atlantic network with hubs in Amsterdam and Paris.
*All sources from Bloomberg unless otherwise specified