December 13th, 2017
Daily Market Commentary
- Canadian stocks closed at a five-week high amid gains in material and consumer shares, while the Western Canada crude differential hit the widest gap in four years. The S&P/TSX Composite Index added 11 points or 0.1 percent to 16,114.03. Materials stocks rose 0.6 percent, propelled by a 2.8 percent gain at Potash Corp. of Saskatchewan Inc. and a 2.9 percent increase at Agrium Inc. Agrium is buying Louis Dreyfus Co.’s fertilizer business.
- Canada’s largest pension fund and Onex Corp. have teamed up to bid for Element Fleet Management Corp., with KKR & Co. also making an offer for the commercial vehicle and equipment leasing company, according to people familiar with the matter. The group comprised of Canada Pension Plan Investment Board and Onex is the leading bidder at this stage of the sale process, said the people, who asked not to be identified because the details aren’t public. A deal to take Toronto-based Element private could be reached as early as this year, they said.
- Canada’s biggest pension fund is holding back from investing in India’s stressed-asset market as valuations for delinquent firms in the South Asian nation remain higher than other countries. “It is purely the pricing,” Mark Machin, president and chief executive officer of Canada Pension Plan Investment Board, told reporters in Mumbai on Wednesday. “When we look at things on a global basis and when we look at things on a risk-return basis, we find the pricing in India high.” CPPIB, with more than $255 billion under management, and compatriots Caisse de depot et placement du Quebec and Brookfield Asset Management are scouting for investment opportunities amid India’s $210 billion pile of soured debt.
- Activist investor FrontFour Capital Group is urging Obsidian Energy Ltd. to explore a sale, arguing the company could fetch twice as much as its current share price, according to a person familiar with the matter. The decision to push for a sale comes four years after FrontFour started to build its position in the embattled Calgary-based oil and gas producer, which was formerly known as Penn West Petroleum Ltd. It’s now FrontFour’s third-largest investment, according to data compiled by Bloomberg.
- The Trudeau government is escalating a trade fight with Boeing Co., ditching plans to buy 18 Super Hornets while launching a search for new fighter jets under parameters that could hamper future bids from the U.S. plane maker. Canada said Tuesday it would instead pursue plans to buy 18 used Australian F-18 fighter jets to supplement its aging fleet, and launched the process to buy 88 new jets as a long-term replacement. Officials didn’t specify a purchase price or maintenance cost for the Australian jets. The purchase needs approval from the U.S. government.
- European stocks are little changed as traders focus on central bank decisions from the Federal Reserve after the market close today and the European Central Bank tomorrow. The Stoxx Europe 600 Index slips 0.1%. A gain in retail shares, led by U.K. electronics retailer Dixons Carphone Plc, is offset by a drop in food and beverage companies and household goods names.
- S&P 500 Index futures were little changed after earlier falling on news that the Democratic candidate won in Alabama’s Senate race, cutting the Republican majority. The dollar halted its longest winning streak since January 2016, though it recovered most of the ground it lost after a Democratic candidate won in Alabama’s Senate race, cutting the Republican majority.
- Most Asian stocks rose, led by banks and healthcare companies, before the Federal Reserve’s interest-rate decision. The MSCI Asia Pacific Index gained 0.3 percent to 170.38 as of 4:15 p.m. in Hong Kong. Six shares advanced for every four that fell with a measure of the region’s banks supported the gauge. Japan’s Topix index declined, halting a four-day rally, while the Nikkei 225 Stock Average continued its retreat from a 26-year high. Hong Kong equities posted their biggest gain in three week.
- Oil resumed its advance toward $58 a barrel as industry data showed U.S. crude stockpiles probably dropped for a fourth week. Futures rose 1 percent in New York after slipping 1.5 percent on Tuesday. Inventories declined 7.38 million barrels last week, the American Petroleum Institute was said to report. Government data Wednesday is also forecast to show supplies shrank. Brent jumped above $65 a barrel in London for the first time in more than two years on Tuesday after the closure of a critical North Sea pipeline because of a crack.
- Gold holds near lowest in almost five months as investors count down to end of Federal Reserve meeting Wednesday, which is likely to deliver a rate hike and offer insight on monetary policy path next year.
- OPEC predicted that global oil markets won’t rebalance until late next year after boosting forecasts for supplies from the U.S. and other rivals. The Organization of Petroleum Exporting Countries’ monthly report raised its outlook for non-OPEC supply in 2018 by 300,000 a barrels a day, as its projections for American output caught up with those of the U.S. government. As a result, an initiative by OPEC and Russia to clear a global oil glut by cutting output — previously seen succeeding in the third quarter of 2018 — will take effect more slowly.
- China and the U.K. will assess the feasibility of a bond-trading link that would mark a fresh step in opening up the world’s largest emerging debt market, according to people familiar with the matter. The two governments, whose officials gather Dec. 15-16 in Beijing for bilateral financial and economic talks, have agreed to form a working group to look at the issue, the people said. The “bond connect” would seek to facilitate two-way investments, the people said, asking not to be named as the discussions are private.
- As investors await 2018 direction from Federal Reserve chairman nominee Jerome Powell, they will get one last chance to hear Janet Yellen’s take on the U.S. economy. If all goes as expected, she will use her final scheduled press conference before stepping down at the helm of the U.S. central bank to explain why officials raised rates a third time this year.
- Europe, often a laggard compared to the U.S. in mergers and acquisitions, has turned out to be the hot spot for deals this year. A more stable economic outlook and growing confidence in Europe has boosted dealmaking activity in the region, while in the U.S., the unresolved battle to lower U.S. corporate tax rates as well as fewer blockbuster deals have contributed to lower volumes. Buyers have announced $680 billion of acquisitions targeting European companies in 2017, up 23 percent from last year’s total.
- Britain shed jobs at the fastest pace in almost 2 1/2 years between August and October in a sign that the labor market is slowing. The number of people in work fell by 56,000, the most since the period through May 2015, the Office for National Statistics said on Wednesday. The decline exceeded the median forecast of economists. Pay growth accelerated, though it still lagged well behind inflation, meaning a fall in real terms that’s forecast to continue into 2018.
- The defeat of Republican Roy Moore in Alabama’s U.S. Senate race by Democrat Doug Jones was a stunning rebuke to the GOP’s anti-establishment wing led by Steve Bannon and a major political embarrassment for President Donald Trump. Moore’s candidacy was the opening gambit in Bannon’s war to oust Senate Majority Leader Mitch McConnell and the rest of the GOP’s congressional leadership. While Trump backed Moore’s primary challenger at McConnell’s behest, he jumped in with a full-throated endorsement of Moore a week before the election in an attempt to put him over the top.
- Binh Son Refining & Petrochemical Co., operator of Vietnam’s first oil refinery, is in talks with companies including Russia’s Rosneft PJSC about taking a strategic stake that may raise about $1 billion, according to the company’s chairman. The refiner has been in talks with seven companies, including Vietnam National Petroleum Corp. and Spain’s Repsol SA, about selling a 49 percent share,Nguyen Hoai Giang said in an interview Wednesday in Hanoi. The sale is expected to be completed next year, he added.
- Secretary of State Rex Tillerson said the U.S. is prepared to negotiate with North Korea without preconditions, but the Trump administration would first want a “quiet period” without nuclear or missile tests for discussions with Kim Jong Un’s regime to begin.
- Thailand rejected claims that a planned 150 billion-baht ($4.6 billion) sale of mobile-phone licenses next year is too expensive, while adding the auction could weigh on the profitability of telecom operators. The reserve prices were derived from those achieved in earlier sales, Takorn Tantasith, the secretary general of the National Broadcasting & Telecommunications Commission, said in an interview in Bangkok.
- The European Union eased a MiFID II headache for stock traders around the world, allowing firms in the bloc to continue transactions on U.S., Hong Kong and Australian platforms without running afoul of the EU law. The European Commission, the EU’s executive arm, said on Wednesday that oversight in the three jurisdictions is equivalent to that in the bloc, key findings that help avoid a rupture in markets. The decisions allow for trading to remain on U.S. exchanges and alternative trading systems as well as exchanges in Hong Kong and Australia.
- A small economy that’s constantly battling risks beyond its control like typhoons and oil prices has been one of the most successful in managing inflation in Asia. The Philippine central bank, which has an annual inflation target that’s currently set at 2 percent to 4 percent, met its goal six times in the past eight years and the two times it failed were because prices were too low.
- Saudi Arabian Oil Co. is asking banks to pitch for roles as coordinators and bookrunners on its initial public offering, people familiar with the matter said, as the state-owned crude producer pushes ahead with plans for the world’s biggest share sale. The company sent out the request for proposals to banks over the past few days and aims to appoint a group of lenders by early next year, said the people, asking not to be identified as the information is private. Saudi Aramco, as it’s known, hasn’t told banks where it plans to list the shares, the people said.
- Noble Group Ltd. is talking to creditors about a conventional restructuring that includes a debt-for-equity swap, according to people familiar with the negotiations, a move that represents a change of tack as the commodities trader fights for survival. The shares extended their surge. After meetings in Hong Kong last week, the company is expecting a proposal from its creditors to restructure $3.5 billion in debt, including a major debt-for-equity element, the people said, asking not to be identified discussing private talks. Depending on its size, the swap could wipe out a significant portion of the shareholdings of current investors.
- Toshiba Corp. and Western Digital Corp. ended a months-long legal spat that had threatened to derail the $18 billion sale of Toshiba’s flash-memory business and cut the U.S. company off from a future supply of vital new products. Western Digital is dropping arbitration claims in the U.S. that were aimed at stopping the sale to a consortium led by Bain Capital. In return, the Japanese company will end its legal claims against Western Digital, the two companies said in a statement. Western Digital will be able to invest alongside Toshiba in two new chip plants in Japan and receive a guaranteed supply of memory chips, they said. The U.S. company’s shares rose more than 3 percent in late trading.
*All sources from Bloomberg unless otherwise specified