September 27th, 2017

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks snapped a rally that saw the benchmark index gain 2.6 percent in eight trading days, edging lower as falling metals prices weighed on mining shares. The S&P/TSX Composite Index lost 42 points or 0.3 percent to 15,474.12 as the materials sector fell 1.1 percent. Gold prices tumbled as Federal Reserve Chair Janet Yellen said the U.S. central bank should be “wary of moving too gradually,” pressuring shares of miners such as Eldorado Gold Corp., which fell 4.8 percent.
• Canada’s hot economy won’t push Bill Morneau off his deficit spending plans, with the finance minister pledging continued cash for infrastructure and other programs to make the nation’s expansion sustainable in the long-term. Morneau, speaking Tuesday to the Bloomberg Canadian Fixed Income conference in New York, struck an upbeat tone about the resiliency of the country’s economy — saying it can withstand a higher dollar while expressing optimism over risks such as rising interest rates and U.S. trade talks.
• Bombardier Inc. is facing one of its biggest crises in years after a punitive ruling from the U.S. threatened to make the Canadian manufacturer’s key C Series jet all but unsellable and its train operations were left isolated by a deal between European rivals. Prospects for the C Series, which cost at least $6 billion to develop, were hobbled by the U.S. Commerce Department’s preliminary decision to levy import duties of 220 percent over claims of improper subsidies.
• Freshii Inc. fell the most since its initial public offering after the quick-service restaurant chain slashed its store-opening forecast for the current fiscal year and its earnings guidance for 2019, citing an ambitious schedule that proved to be impossible to meet. The shares tumbled as much as 40 percent before closing down 35 percent at C$5.75 in Toronto, half the January IPO price of C$11.50. Trading volume was more than 30 times the full-day average of the past three months.
• Manitoba is studying whether to involve the private sector in rolling out sales of marijuana in the Canadian province — a contrast to Ontario’s plan to sell the drug in government-run stores. Manitoba has issued an expression of interest for potential partners in the pot industry, Finance Minister Cameron Friesen said Tuesday at the Bloomberg Canadian Fixed Income Conference in New York.
• Canada’s oldest bank is marketing its first ever Australian dollar bond, as more issuers outside the South Pacific nation raise money there to diversify funding sources. Bank of Montreal is offering a five-year senior unsecured note in a deal that could price by Thursday, joint-lead manager UBS Group AG said in a statement. A successful transaction would add to an already blockbuster year for Kangaroo bonds, with year-to-date issuance topping A$26.6 billion ($21 billion) – a 20 percent rise from 2016.

 

 

World Headlines

• European stocks edge higher as Federal Reserve Chair Janet Yellen boosts expectations for an interest-rate rise in December. The Stoxx Europe 600 Index rises 0.2%. Banks lead gains after Yellen said Tuesday it would be imprudent to keep monetary policy on hold until inflation is back to 2%, and the Fed should be wary of tightening too gradually.
• The dollar extended gains and bonds fell after Federal Reserve Chair Janet Yellen boosted expectations for an interest-rate rise in December. Stocks advanced as President Donald Trump prepares to lay out his tax-cut plan. The Bloomberg dollar index headed for a six-week peak and Treasury yields jumped to the highest in two months after Yellen cautioned against tightening “too gradually.” Stocks in Europe climbed, with all major country benchmarks in the green, and S&P 500 Index futures also gained as details of Trump’s long-awaited tax plan began to emerge.
• Most Asian equities outside Japan advanced as technology stocks rebounded from their steepest daily drop since November, even as Japan companies trading without the right to a payout dragged the broader regional benchmark lower. The MSCI Asia Pacific ex-Japan Index was little changed at 528.57 as of 4:39 p.m. in Hong Kong. Japan stocks fell as more than 1,000 companies traded ex-dividend, dragging down the MSCI Asia Pacific Index.
• Oil traded near $52 after entering a bull market as U.S. industry data showed an unexpected decline in crude stockpiles, the first decrease since Hurricane Harvey hit the Texas coast last month and shuttered refineries. Futures fell 0.2 percent in New York after slipping on Tuesday. Inventories fell by 761,000 barrels last week, the American Petroleum Institute was said to report.
• Gold falls a second day after Federal Reserve Chair Janet Yellen says gradually raising interest rates is appropriate policy stance, boosting odds for another hike this year, and as investors track North Korea.
• President Donald Trump and Republican leaders will launch an urgent effort to get a major legislative win this year, announcing a long-awaited tax plan that will immediately set off a fight over how much top earners should pay. The framework they’re set to release Wednesday proposes cutting the top individual rate to 35 percent — but leaves it up to Congress to decide whether to create a higher bracket for those at the top of the income scale.
• Volkswagen AG’s Scania unit was fined 880.5 million euros ($1.03 billion) by the European Union for price-fixing, a year after other members of a truck cartel reached a record settlement with regulators. The fine is the EU’s second-highest ever for one company in a price-fixing case, topped only by a 1.01 billion-euro penalty for Daimler AG in the same investigation last year.
• Finnish utility Fortum Oyj has offered to buy EON SE’s legacy fossil fuel and trading business Uniper SE in what could turn into Europe’s biggest utility acquisition in five years. Fortum and the German utility signed an agreement where EON can tender its 47 percent shareholding in Uniper SE in early 2018. The Espoo, Finland-based company will also make the offer of 22 euros a share to all Uniper investors, valuing the company at 8.05 billion euros ($9.5 billion). The deal obliges EON to pay a fee if it doesn’t hand over its stake.
• Insured damage could be $40b-$85b from Hurricane Maria, with Puerto Rico accounting for more than 85% of the loss, based on initial estimate from AIR Worldwide. While the global reinsurance industry would absorb the vast majority of losses from Maria, combined impact with hurricanes Harvey and Irma could result in a large negative impact on book value for many global reinsurers
• JPMorgan Chase & Co. was ordered by a Dallas jury to pay more than $4 billion in damages for mishandling the estate of a former American Airlines executive, but the verdict will probably be knocked down on appeal. Jo Hopper and two stepchildren won the probate court verdict over claims that JPMorgan mismanaged the administration of the estate of Max Hopper, who was described as an airline technology innovator in a statement issued by the family’s law firm.
• The ultraconservative kingdom of Saudi Arabia has issued an order allowing women to drive, ending a long-standing policy that’s cast an unflattering light on the country’s treatment of women. It’s also a royal opportunity for global automakers eager to make further inroads into the Middle East’s biggest economy. Saudi Arabia’s move to open up its auto market to about half of its 32 million total population will have a profound impact on vehicle demand, driving habits and even immigration patterns in a country where low-wage immigrants from Bangladesh and the Philippines often work as hired drivers.
• Nike Inc. shares declined early Wednesday after the company squelched any hope of a quick turnaround at its ailing domestic operations. The world’s biggest sportswear maker expects North American sales to decline again this quarter, following a 3 percent dip in the region last quarter. Nike’s Converse business also will drop in the current period.
• Cofco International’s seeds unit has attracted four bidders in a deal that could fetch as much as $1 billion, said people familiar with the matter. Agri-chemical giants Syngenta AG, BASF SE and DowDuPont have held talks with the trading unit of China’s largest food company, according to the people, who asked not to be identified because the information is private. French cooperative Groupe Limagrain has also expressed an interest, the people said.
• Efforts to unblock the Brexit stalemate suffered two setbacks on Wednesday as data showed swelling European pension costs would add to Britain’s exit bill and the veto-wielding European Parliament dug its heels in on what kind of deal it would accept. As U.K. and European Union officials haggle over the size of Britain’s divorce settlement, documents show the EU’s liabilities grew by almost 4 percent in 2016, with the cost of pensions for EU officials rising more than 5 percent. Higher pension costs — already a controversial part of the bill — will increase what the EU thinks the U.K. should pay, and risk injecting additional tension into already fraught talks.
• Alstom SA’s merger with the train-making arm of Siemens AG will mark the end of a bitter rivalry as the European rail industry’s biggest adversaries unite in an effort to fend off the challenge from China and Japan. The ill-tempered contest between Alstom and Siemens has been a feature of the sector for decades and reached boiling point in 2011, when the pair engaged in a public spat over the safety of competing high-speed models they were pitching to Channel Tunnel express operator Eurostar International Ltd. Now the French and German companies are set to join forces in a business with 15 billion euros ($18 billion) in combined sales as they seek to halt the advance of Asian giants including Beijing-based CRRC Corp.
• Japan’s credit rating could be in the cross hairs after Prime Minister Shinzo Abe indicated the nation may abandon its goal of covering key expenditures through taxes. The cost of insuring Japan’s government debt against default rose to a 15-month high on Tuesday, with policy uncertainty adding to concerns about tensions with North Korea.
• China’s money rates climbed, with the cost of 14-day funds soaring to the highest since January 2015, as the central bank’s deleveraging drive collided with quarter-end cash demand. The rate to borrow money for two weeks in the interbank market jumped as much as 1 percentage point to 5.07 percent before reversing course, slipping to 3.97 percent, according to weighted average prices.
• Construction workers have already started the work toward filling in part of the South China Sea to make room for Hong Kong airport’s third runway. The project is also set to make bankers busy. The Airport Authority Hong Kong needs to raise HK$69 billion ($8.8 billion) to fund the runway, and should consider selling bonds and tapping the loan market, according to a report by its financial consultant HSBC Holdings Plc.

 

 

*All sources from Bloomberg unless otherwise specified