November 7th, 2017

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks closed at a fresh high, their fifth in seven trading days, as oil prices soared to levels not seen since mid-2015. The S&P/TSX Composite Index gained 72 points or 0.5 percent to 16,092.20. Energy shares jumped 1.6 percent as the price of crude rallied 3.1 percent above $57 a barrel, spurred by widespread arrests that raised fears of instability in Saudi Arabia.
• Italy’s Fincantieri SpA and France’s Naval Group are jointly bidding for a Canadian shipbuilding contract worth up to C$60 billion ($47 billion), in what could be a test of deeper collaboration between France and Italy on military and civil shipbuilding after they resolved a diplomatic dispute in September. The two companies plan to pitch jointly for Canada’s Surface Program, which would involve the construction of 15 warships, according to four people familiar with the matter who asked not to be named as the discussions are confidential. Spokesmen for Fincantieri and Naval Group declined to comment.
• Nafta negotiators plan to begin meeting in Mexico City two days ahead of schedule this month in order to give themselves more time to discuss the myriad issues covered under the 23-year-old trade pact, according to two people familiar with the plans. Mexico’s stock index briefly extended its gain. Negotiators have organized talks to revamp the North American Free Trade Agreement into different rounds, and last met in October during round four in the Washington area.
• The push to salvage a Pacific-rim trade pact will come to a head this week as nations diverge on whether it should be preserved, abandoned or renegotiated from scratch after President Donald Trump pulled the U.S. out of the deal. The Asia-Pacific Economic Cooperation leaders’ meeting in Danang, Vietnam, will bring together the remaining 11 members of the Trans-Pacific Partnership, with both Japan and Vietnam raising the prospect of concluding a deal.
• Chevron Corp. is planning a significant drilling program in the Duvernay shale formation, marking a vote of confidence in Canada’s energy industry in a year when it joined other majors in selling assets there. The initial development in the East Kaybob section of the formation will encompass about 55,000 acres (22,000 hectares), the San Ramon, California-based company said Monday. Chevron has a net 70 percent operating interest in about 330,000 acres in the Duvernay.

 

 

World Headlines

• European stocks rise, led by energy shares including Total and Shell, while banks bounce back from a two-day selloff. The Stoxx Europe 600 Index rises 0.2%, just shy of a two-year high it reached last week.
• The dollar strengthened and U.S. Treasury yields rose as President Donald Trump called on North Korea to “make a deal” on its missile and nuclear program. Investors’ focus returned to geopolitics as Trump continued his tour of Asia. Speaking next to South Korean President Moon Jae-in in Seoul, Trump said he saw some progress on North Korea and called on the rogue state to “come to the table”.
• Asian equities rose to a decade high, with energy and commodities stocks leading gains as oil and metals prices rallied. The MSCI Asia Pacific Index gained 0.8 percent to 171.40 as of 4:37 p.m. in Hong Kong, advancing for a second consecutive session.
• Oil traded near the highest level in more than two years as political upheaval in top crude exporter Saudi Arabia reverberated through a market where prices were already elevated by signs of tightening supply. Investors have piled into oil as a shake-up of the ruling elite in OPEC’s biggest producer was seen to consolidate power with Crown Prince Mohammed bin Salman, who backs extending the group’s output cuts aimed at clearing a global glut.
• Gold futures advance most since Sept. 25 after Saudi Arabia said this weekend’s attempted missile strike at Riyadh’s airport could be an act of war by Iran.
• Saudi Arabia’s anti-corruption crackdown is expanding beyond the list of princes, billionaires and officials already arrested. The central bank is asking banks in the kingdom to freeze the accounts of dozens of individuals who aren’t under arrest, as well as those being detained, according to three people with knowledge of the matter.
• President Donald Trump’s planned tax overhaul is likely to boost U.S. economic growth by about a quarter percentage point in 2018, yet it will also dent demand for housing and fail to lower the chances of a recession, according to a Bloomberg News survey. Three-quarters of 33 economists responding from Friday to Monday expect Congress to pass a version of the House tax bill announced last week. Of those expecting passage, all 22 responding predicted some boost from the $1.5 trillion, 10-year proposal, with gains ranging from 0.05 to 0.9 percentage point and a median of 0.28 point.
• When Donald Trump lands in Beijing this week intent on tackling one of his biggest irritations — the trade deficit — he could get help from an unlikely source: his hosts. In response to questions from Bloomberg News, China’s Commerce MinisterZhong Shan laid out a list of measures being undertaken that could help narrow the $327 billion gap, America’s largest with any nation.
• Broadcom Ltd.’s plan to buy Qualcomm Inc. would have far-reaching implications for the electronics market. Consider the impact on the iPhone. The Apple Inc. device is so dependent on chips made by the companies, as well as parts from another chipmaker Qualcomm is trying to acquire, that removing the components would leave you with little more than a very expensive iPod. In the new iPhone X, Qualcomm chips make it possible to connect with cellular networks, and Broadcom parts ensure the device can detect the cell signals while also enabling new wireless charging features. Also crammed in there are modules to handle mobile payments made by NXP Semiconductors NV, which Qualcomm is in the process of acquiring for $47 billion.
• Siemens AG is planning to unveil significant job cuts at its power and gas division as early as mid-November amid a steep drop in orders for turbines used in electricity plants, according to an executive familiar with the matter. Talks with union representatives are expected to lead to an announcement in the coming weeks on the number of positions to be cut and which sites will be affected, said the person, who asked not to be named because the discussions are still ongoing. Most of the positions will be cut in Germany.
• Billionaire Hasso Plattner, the chairman and largest shareholder of German software-maker SAP SE, is selling a stake in the company valued at 367.5 million euros ($427 million) as he seeks to diversify his holdings. Funds affiliated with Plattner are offering 3.75 million shares, equivalent to a 0.3 percent stake in the software company, according to terms of the transaction. Orders below 98 euros risk missing out on the deal, according to an update sent to investors, indicating the transaction would price at that level.
• A potential bidder for Saigon Beer Alcohol Beverage Corp. says Vietnam’s biggest brewer is too expensive at its current share price and the valuation of the nation’s largest consumer company should be the benchmark. Vietnam Dairy Products JSC, also known as Vinamilk, would make a good yardstick for comparison as both are market leaders in growing categories, according to Hui Choon Kit, chief financial officer of Fraser and Neave Ltd. His company is a vehicle for Thai Beverage PCL’s international expansion and also owns a stake in Vinamilk.
• Wal-Mart Stores Inc.’s app is close to surpassing Apple Pay in usage for mobile payments in the U.S., giving the world’s largest retailer even more clout as a growing number of people shop with their smartphones. Available in 4,774 stores, Walmart Pay is enrolling tens of thousands of new users a day, up from thousands four or five months ago, said Daniel Eckert, who runs the business. Two-thirds of the customers who try it also use it a second time within 21 days, he said, giving him confidence Walmart Pay will surpass Apple Pay in the U.S. in terms of use by shoppers in stores where they’re accepted.
• China Resources Power Holdings Co. and San Miguel Corp. are among final bidders for AES Corp.’s Philippine power plant, which could be valued at more than $1 billion, people with knowledge of the matter said.
• Volkswagen AG plans three research projects on a Google quantum computer as part of the German automaker’s push to develop new digital features for cars and broaden its technological heft beyond manufacturing and selling vehicles. The projects include refining traffic-management systems, simulating the structure of electric-car batteries and other materials as well as artificial intelligence for autonomous driving, Wolfsburg-based Volkswagen said Tuesday in a statement.
• Asia’s biggest automaker saved 100 billion yen ($875 million) in the half year ended September through measures including the continued roll out of a new manufacturing process. That’s more than $3,300 dollars every minute in those six months. The money saved will help bolster spending on research and development to a record 1.06 trillion yen this year as President Akio Toyoda pushes the company deeper into new electrified powertrains and artificial intelligence, areas he says the automaker needs to lead.
• Bad corn harvests in Europe are sucking in bucketloads of imports from Brazil. The weakest regional output in years and cheap supplies from the South American nation are set to drive inbound shipments of the grain up 26 percent to a record this season, according to the International Grains Council. Already, imports have surged 72 percent from a year ago, European Commission data show.
• China’s Shandong Ruyi Group is paying more than $2 billion to buy the owner of Lycra, the form-fitting elastic material used in everything from skinny jeans to yoga pants, people with knowledge of the matter said. The purchase from Koch Industries Inc. is part of the Chinese apparel producer’s goal to acquire leading global textile brands, one of the people said, asking not to be identified because the information is private. Shandong Ruyi Group announced Oct. 28 it will buy the Apparel & Advanced Textiles business of Invista, a subsidiary of Wichita, Kansas-based Koch Industries, for an undisclosed price.
• As John Cryan mulls steps to restore growth at Deutsche Bank AG, he’s counting on U.S. companies’ appetite for ever more debt to help lead the charge. The Frankfurt-based lender added 24 managing directors and directors at its U.S. corporate finance business this year, a record hiring pace, according to Mark Fedorcik, co-head of Deutsche Bank’s global capital markets unit. Among the goals: to become a top arranger of leveraged loans again, the risky debt that has surged amid low interest rates and the prospect of a rollback of post-crisis regulations.
• The North Atlantic Treaty Organization plans to upgrade its command structure for the first time since the end of the Cold War in a sign of heightened geopolitical tensions with Russia. NATO Secretary General Jens Stoltenberg signaled the alliance intends to increase the number of its military headquarters to nine from seven. One of the new command centers will focus on maritime security in the Atlantic and the other will be responsible for troop movements in Europe, he said on Tuesday while previewing a Nov. 8 meeting of NATO defense ministers at which they are due to endorse a draft of the revamp.

 

*All sources from Bloomberg unless otherwise specified