April 24th, 2018


Daily Market Commentary


Canadian Headlines

  • Canadian National Railway Co. cut its earnings forecast, saying the additional spending required to ease bottlenecks will weigh on profit. Adjusted earnings this year will be C$5.10 to C$5.25 a share, Canadian National said in a statement Monday, 15 cents lower at both ends than the previous projection. Analysts expect the company to bring in C$5.19, according to the average estimate compiled by Bloomberg. The pared outlook underscores the challenge for interim Chief Executive Officer Jean-Jacques Ruest as Canada’s biggest railroad rushes to cope with a surge in freight that slowed operations and angered customers such as farmers and oil producers. Canadian National raised its 2018 capital expenditure budget 6.3 percent to C$3.4 billion ($2.6 billion).
  • Teck Resources Ltd. said it’s had to reduce coal output after problems at Westshore Terminals Investment Corp.’s British Columbia facility slowed shipments. Strong demand for steelmaking coal meant Canada’s biggest miner by sales could have beaten its original sales forecast of as much as 6.5 million metric tons in the quarter through March, the company said in an earnings statement on Tuesday. In the end, sales for the quarter amounted to 6.1 million tons. The Vancouver-based company, which also produces zinc and copper, reported first-quarter profit excluding one-time items of C$1.31 a share, beating the C$1.27 average of 20 analysts’ estimates compiled by Bloomberg.



World Headlines

  • Europe’s shares were little changed in early trade as investors assessed earnings from companies including Volvo and Banco Santander, while a slump in aluminum prices continued to rock mining stocks. Akzo Nobel and Banco Santander fell after reporting disappointing results, while Apple supplier AMS AG shares tumbled 10% after warning on negative operating margins. SAP bucked the trend, up 3.3% after raising its sales outlook.
  • U.S. Treasuries edged higher, leading most European government bonds as investors hit pause on a selloff that took benchmark rates within a whisker of 3 percent. As the yield on 10-year U.S. notes slipped, the dollar was little changed at about its highest level since January, managing to preserve its gains from Monday.
  • Asia stocks rose as investors turned their attention to the outlook for company earnings and as concerns about global political tensions eased. A weaker yen supported Japanese equities. The MSCI Asia Pacific Index gained 0.4 percent to 173.36 as of 5:13 p.m. in Hong Kong. Indexes from Australia to India climbed. South Korea’s benchmark slid after SK Hynix Inc. reported disappointing earnings. The dollar held near a three-month high as U.S. Treasuries rose.
  • Oil rose for a third day amid flaring geopolitical tensions in the Middle East and expectations for a decline in U.S. crude stockpiles. Futures in New York climbed as much as 1 percent, set for the highest close since late 2014. A measure of oil volatility rose the most in two weeks amid concern that President Donald Trump will reimpose sanctions on Iran, while friction between the Islamic Republic and fellow OPEC member Saudi Arabia increased with further violence in Yemen.
  • Gold holds 3-day decline as dollar trades at the highest since early January. Palladium heads for the biggest 2-day drop in more than a year.
  • Britain was in surplus on its day-to-day budget for the first full fiscal year since the early 2000s, a milestone that is almost certain to revive calls for an end to austerity. Revenue exceeded spending by 112 million pounds ($156 million) in the 12 months through March, meaning Britain is now borrowing only to finance capital investment, figures from the Office for National Statistics showed Tuesday.
  • Takeda Pharmaceutical Co. is nearing a preliminary agreement to acquire Shire Plc after the Japanese drugmaker sweetened its roughly $60 billion bid for the biotechnology company, according to people with knowledge of the matter. The two companies have been working on a tentative agreement on price and may announce a preliminary accord as early as Tuesday, the people said, declining to be identified as the discussions are confidential. Under U.K. takeover rules, Takeda must announce a firm offer or abandon its pursuit by Wednesday afternoon. The companies may seek an extension from authorities to finalize talks, the people said.
  • The European Central Bank may have already started to wind down its corporate-bond buying program, according to Deutsche Bank AG. The rate of purchases under the Corporate Sector Purchase Programme fell 50 percent in April to about 700 million euros ($853 million) per week, down from 1.4 billion euros during the first quarter, Deutsche Bank said in a note published on Tuesday. That may mean the ECB is starting early in its plan to wean the European bond market off the corporate debt purchases it started in June 2016 to prop up growth, Deutsche Bank said.
  • Investors hunting for clues to the iPhone X’s reception can take a deeper look at its main manufacturing partners. And the latest doesn’t look good. Apple Inc.’s five largest device assemblers reported a sharp slowdown after peaking at the end of last year, suggesting demand for the high-end device may have faded just a quarter after its release. While Hai Precision Industry Co., Pegatron Corp. and three other key suppliers reported an 8 percent rise in their total sales across the March quarter, growth cratered later in the period — a drop that in the past has presaged a downturn for Apple.
  • The world’s biggest cryptocurrencies rose again on Tuesday, extending their April rally deep into its fourth week and taking this month’s increase to almost 75 percent. Ethereum, Ripple and Bitcoin Cash led the advance, according to prices compiled by Bloomberg and Coinmarketcap.com. Market leader Bitcoin climbed 3.6 percent; its trading volume has topped $2 billion in the 10 biggest exchanges during the past 24 hours, according to Coinmarketcap.com.
  • The recent surge in oil prices is poised to boost global assets as crude-producing states deploy replenished stashes of petrodollars, according to a growing chorus of analysts. It’s the potential reversal of part of the global “quantitative tightening” that was said to have occurred as oil prices dropped precipitously, and could amount to an extra shot of liquidity at a time when central banks are beginning to normalize monetary policy.
  • After two weeks of convulsions caused by U.S. sanctions against United Co. Rusal, the metals market was braced for more mayhem: many traders were betting the Russian aluminum giant was just days away from having to shut plants from Sweden to Jamaica. Then on Monday, the U.S. Treasury threw a potential lifeline by making clear it’s not pushing for the company’s collapse. “The U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” Treasury Secretary Steven Mnuchin said.
  • For generations of investors, Exxon Mobil Corp. has been a cornerstone of fund managers’ portfolios alongside the biggest names in corporate America. Not so much any more. From leading the S&P 500 Index a decade ago, the company has dropped to the ninth-largest in a top 10 now dominated by technology giants. Its rivals Royal Dutch Shell Plc and Chevron Corp. aren’t faring much better, with investors demanding unusually high dividend yields to hold the stocks. At fault, a toxic troika that combines gushing supply with fears that long-term demand will flat-line as electric vehicles and renewable energies grow, and climate change policies proliferate. And while cash flow for oil’s majors in 2018 is likely to be the highest in 12 years, investors are largely unmoved.
  • Mitel holders will receive $11.15 per share in cash from affiliates of Searchlight Capital Partners, in a premium of 9.7% over the company’s closing price on April 23, sending the shares soaring about 14.6% in pre-market trading.
  • United Technologies Corp. raised its 2018 profit forecast as the manufacturer nears the finish line for one of the biggest-ever aerospace acquisitions. Adjusted earnings will be $6.95 to $7.15 a share, the company said Tuesday in a statement. The previous range was $6.85 to $7.10. Wall Street is expecting $7.07 a share, according to the average of analyst estimates compiled by Bloomberg.
  • Coca-Cola Co. is getting results from its moves to slim down operations and revamp its products for healthy-minded consumers. The company posted sales that beat analysts’ estimates in the first quarter, helped by revamped versions of its core diet brands and a growing portfolio of products that push beyond soda into new categories. Atlanta-based Coca-Cola has for years been selling off the bottlers it owned in order to refocus on becoming a marketing and formulation company. After a lengthy transition period, the strategy is finally bearing fruit, with the company saying it’s on-track to deliver full-year targets.
  • Alphabet Inc. is pushing efforts to roll back the most comprehensive biometric privacy law in the U.S., even as the company and its peers face heightened scrutiny after the unauthorized sharing of data at Facebook Inc. While Mark Zuckerberg and Sheryl Sandberg were publicly apologizing this month for failing to protect users’ information, Google’s lobbyists were drafting measures to de-fang an Illinois law recognized as the most rigorous consumer privacy statute in the country. Their ambition: to strip language from a decade-old policy that regulates the use of fingerprints, iris scans and facial recognition technology, and insert a loophole for companies embracing the use of biometrics.
  • The European Union spurned U.K. calls for a legislative fix to the threat posed by Brexit to trillions of dollars of financial contracts, telling banks and insurers to solve the problem themselves. Valdis Dombrovskis, the EU’s financial-services policy chief, said the private sector must take the lead in ensuring that existing contracts can continue and not be disrupted when the U.K. exits the EU. At issue are 96 trillion pounds ($134 trillion) of derivatives and tens of millions of insurance policies that U.K. regulators say might be thrown into disarray because firms could lose their ability to fulfill agreements with clients.
  • A consortium of investors agreed to buy CityFibre Infrastructure Holdings Plc for 537.8 million pounds ($750 million) to tap into growing demand for full-fiber internet access in the U.K. Funds advised by Antin Infrastructure Partners and West Street Global Infrastructure Partners, part of Goldman Sachs Group Inc., offered 81 pence in cash for each CityFibre share, a 93 percent premium to Monday’s closing price, the companies said in a statement Tuesday.
  • Takeda Pharmaceutical Co. will likely see a sharp hit to its finances if its bid to buy Shire Plc succeeds and it borrows tens of billions of dollars to pay for the deal. Takeda is nearing a preliminary agreement to acquire Shire after the Japanese drugmaker sweetened its roughly $60 billion bid for the biotechnology company, according to people with knowledge of the matter. Observers expect Takeda will first tap short-term bank loans, before replacing them with longer-term funds via bond sales or other means.
  • Lenovo Group Ltd. is increasingly at risk of being dropped from Hong Kong’s benchmark equity index as its shares tumble more than any other technology company in the world. The Chinese computer maker has slumped 56 percent since being added to the Hang Seng Index in March 2013, wiping out $5.8 billion in value. Companies removed from the gauge in the past decade have seen their value fall a median 48 percent before being excluded, according to Bloomberg calculations.
  • Vanguard Group amassed $5.2 trillion of client assets and revolutionized the U.S. investment industry by offering low-cost funds to millions of Americans. Now it wants to do something similar in China, even if the strategy takes years to bear fruit. More than four decades after Vanguard founder Jack Bogle opened the first S&P 500 Index fund, the firm is laying the groundwork for a China expansion made easier by the nation’s opening to foreign asset managers. Vanguard is on track to more than double the size of its Shanghai office this year and may seek approval to sell products to wealthy investors as a first step before seeking a foreign-owned mutual fund license when regulators allow it in 2021, saidCharles Lin, the firm’s China head.
  • The U.S. startup visa, passed with much fanfare during the twilight of Barack Obama’s presidency, was supposed to draw thousands of foreign entrepreneurs. Instead, just 10 people have applied. A big reason for the shortfall is that the year-old program has been constantly under assault since the election of President Donald Trump, whose agenda revolves around tightening immigration rules and dismantling Obama-era policies. The Homeland Security Department has twice delayed implementation of the program but agreed to leave the application process open after venture capitalists won a court challenge in December. No one has been granted a visa, and Homeland Security said last year that it’s working on a plan to kill the rule entirely.
  • Nidec Corp., which supplies components to companies from Apple Inc. to hard-drive maker Seagate Technology Plc, agreed to pay $1.08 billion for refrigeration compressor maker Embraco as the electric motor maker seeks growth outside its home country. The Japanese maker of electric motors is buying Embraco from its third-largest customer, Whirlpool Corp., in its biggest purchase since 2016. Nidec will pay cash in a transaction it expects to close this fiscal year, pending regulatory approval, it said in a statement Tuesday. Separately, Nidec also said it will buy wafer-handling robot maker Genmark Automation with cash on hand, without giving terms.
  • Full Truck Alliance Group, China’s biggest app for Uber-like truck services, raised $1.9 billion in funding to fuel its expansion and revamp the country’s long haul system. The round was led by SoftBank Vision Fund and China Reform Fund, the Guizhou-based startup said in a WeChat posting. Other investors include GSR Ventures, Alphabet Inc.’s CapitalG, Tencent Holdings Ltd. and Sequoia Capital. The money was raised at a valuation of $6.5 billion, people familiar with the matter said, requesting not to be named because the matter is private.


*All sources from Bloomberg unless otherwise specified