February 21st, 2018


Daily Market Commentary


Canadian Headlines

  • Canadian stocks fell Tuesday, following their best week in nearly two years, as gold prices declined the most since July, weighing on miners. The S&P/TSX Composite Index lost 13 points or 0.1 percent to 15,439.44, the first drop in four trading days. Materials lost 1 percent as Barrick Gold Corp. fell 1.8 percent and Agnico Eagle Mines Ltd. lost 2.6 percent.
  • Canadian National Railway Co., the longtime paragon of efficiency for North American railroads, is losing some of its luster as it struggles to catch up with a surprise surge in demand. A jump in volumes is causing persistent network congestion, prompting a public rebuke last week from customer Halliburton Co., which said service delays would hurt its earnings. The problems have dented investor enthusiasm for Canadian National, dragging shares to this year’s biggest decline among the continent’s six biggest publicly traded railroads.
  • Vancouver, one of the hottest housing markets in North America, is getting a little tougher for wealthy Chinese buyers. British Columbia Finance Minister Carole James announced measures targeting foreign buyers and speculators in the first budget since her government was elected on a pledge to make housing more affordable for residents of Canada’s Pacific Coast province. Starting Wednesday, foreigners will pay the province a 20 percent tax on top of the listing value, up from 15 percent now, and a levy on property speculators will be introduced later this year, according to budget documents released Tuesday. The government will also crack down on the condo pre-sale market and beneficial ownership to ensure that property flippers, offshore trusts and hidden investors are paying taxes on gains.
  • Canada’s energy companies can’t get any love, even from many Canadians. With pipeline, regulatory and political frustrations reaching new heights, the nation’s energy stocks slumped to their lowest level in almost two years this month. The iShares S&P/TSX Capped Energy Index ETF, which tracks Canadian energy companies, has seen about $56 million in outflows this year versus $32 million in inflows for an ETF focused on U.S. stocks. The pain has extended to the fixed-income market, with U.S. dollar high-yield bonds from Canadian energy issuers returning less than their global peers in the past 12 months.



World Headlines

  • European bonds advanced and stocks dropped after some worse-than-expected data dented the region’s growth story. Almost every sector of the Stoxx Europe 600 Index fell, with the gauge tracking losses in the U.S. on Tuesday rather than a more positive mood in Asia after data showed a fading outlook for manufacturing and services in the region.
  • The dollar extended its rally and benchmark Treasuries were flat before another round of U.S. debt sales and the release of minutes from the latest Fed meeting. S&P 500 Index futures slipped while 10-year Treasury yields remained near recent highs, spurring the greenback toward a fourth day rising as the U.S. government continues its big week for auctions.
  • Asia technology shares led gains while commodity producers paced declines after U.S. equities halted a six-day rally and bond yields rose. Hong Kong’s benchmark climbed while Taiwan stocks, which resumed trading after the Lunar New Year holiday, climbed the most since September 2015. The MSCI Asia Pacific Index rose 0.3 percent to 177.19 as of 4:42 p.m. in Hong Kong, after earlier sliding by the same magnitude.
  • Oil dropped as U.S. stockpiles were forecast to have expanded for a fourth week, raising questions about OPEC’s success in draining a global oversupply. Crude in New York lost as much as 1.4 percent. Inventories in America rose by 3 million barrels last week, according to a Bloomberg survey. Oil has struggled to regain January’s highs as equities remain weak and a stronger dollar reduces the appeal of commodities priced in the U.S. currency.
  • Gold drops for fourth day as investors count down to release on Wednesday of minutes of Federal Reserve’s January meeting, which may shed light on path of monetary policy over rest of 2018 as inflation picks up.
  • A speed bump in economic momentum in February won’t interrupt the euro area’s upswing. A composite Purchasing Managers’ Index indicates that the 19-nation economy is expanding at a quarterly pace of 0.9 percent, the fastest in eight years, IHS Markit said on Wednesday. That’s even though the gauge fell to 57.5 from 58.8 in January, according to the London-based company.
  • U.K. pay is picking up after employment among citizens of the eastern countries that joined the European Union more than a decade ago fell for the first time since 2009. Average weekly earnings excluding bonuses rose 2.5 percent in the fourth quarter from a year earlier, the most since December 2016, the Office for National Statistics said on Wednesday. The overall employment rate rose to 75.2 percent, close to a record, though unemployment increased to 4.4 percent as fewer workers were economically inactive.
  • Apple Inc. is in talks to buy long-term supplies of cobalt directly from miners for the first time, according to people familiar with the matter, seeking to ensure it will have enough of the key battery ingredient amid industry fears of a shortage driven by the electric vehicle boom. The iPhone maker is one of the world’s largest end users of cobalt for the batteries in its gadgets, but until now it has left the business of buying the metal to the companies that make its batteries.
  • Lloyds Banking Group Plc will invest over 3 billion pounds ($4.2 billion) in technology as part of a new three-year strategic plan. Britain’s biggest mortgage lender will also buy back up to 1 billion pounds of its own shares. The bank also took a 600 million-pound charge for mis-sold payment protection insurance, which hit its earnings. Pretax profit in the fourth quarter fell 20 percent to 780 million pounds from 973 million pounds a year earlier, the bank said. That was lower than a 877 million-pound consensus of four analysts surveyed by Bloomberg News.
  • The U.S. Energy Department is throwing its support behind a request by utilities to extend the life of some nuclear power reactors — keeping them in operation for as long as 80 years. An official with the department, who asked not to be named to discuss its decision-making process, said the agency was conducting research and working with utilities seeking permission from the Nuclear Regulatory Commission to allow nuclear reactors built in the 1970s to keep operating to 2050 and beyond.
  • Pratt & Whitney has proposed dropping an engine modification that grounded almost a dozen Airbus SE A320neo jets as it works to fix the latest glitch plaguing the program, according to people familiar with the plan. The move involves replacing a new engine seal with an older one scrapped amid durability issues, the people said, asking not to be named because it hasn’t yet been made public. That should prevent delivery delays and limit the cost to Pratt and Airbus, though a permanent fix will still be required.
  • U.K. Prime Minister Theresa May is asking the European Union for flexibility on the length of the Brexit transition period with just over a year before the country leaves the bloc. The U.K. has said it wants an implementation period to last around two years, while the European Union has stipulated an end date of Dec. 31, 2020. But the latest draft from the U.K. suggests an even longer bridging phase. That risks inflaming May’s already tense relations with Conservative euroskeptics.
  • Glencore Plc surprised investors with a bigger dividend on the back of surging profit and commodity prices, but is still stockpiling cash as dry powder for future deals. Glencore nearly tripled its dividend payout to $2.9 billion and reported full-year results largely in line with expectations. The results leave Glasenberg well positioned to continue doing what he knows best — deals. While competitors such as Rio Tinto Group shied away from dealmaking last year, Glencore announced acquisitions worth more than $4 billion in copper, oil, zinc and coal.
  • There’s one notable name missing from the technology-led recovery in U.S. stocks: Facebook Inc. The social-media giant has gained less than 3 percent since Feb. 8, the day equity markets saw the trough of their worst selloff in two years. That puts it far behind other large-cap peers such as Amazon.com Inc., Microsoft Corp. and Alphabet Inc., which have all risen at least 9 percent in the same period. Apple Inc. has advanced 11 percent.
  • Nippon Telegraph & Telephone Corp., Japan’s former phone monopoly, plans to buy back as much as 150 billion yen ($1.4 billion) of its shares to enhance investor returns. The parent company of NTT Docomo Inc., the country’s biggest wireless provider, will repurchase as much as 31 million, or 1.57 percent, of its shares from Feb. 22 to June 30, the company said Wednesday in astatement. The shares are down about 10 percent this year.
  • Unibail-Rodamco SE Chief Executive Officer Christophe Cuvilliersays shopping malls must evolve to counter the threat of online retailers such as Amazon.com Inc., amid his company’s A$21 billion ($17 billion) bid to buy Australia’s Westfield Corp. Europe’s largest commercial landlord plans to double the area for dining in its centers to 10 percent, while allocating more space for cosmetics outlets and electric vehicle manufacturer Tesla Inc., Cuvillier said in an interview in Melbourne on Wednesday. The Paris-based company also aims to rotate about 10 percent of tenants at each of its malls annually, he said.
  • Activist hedge fund Elliott Management Corp. has built up a stake of almost 5 percent in Fidessa Group Plc, the U.K. computer-software provider that’s being acquired by Temenos Group AG. Billionaire Paul Singer’s investment firm revealed that it held the stake after Temenos and Fidessa earlier reached a pact on the $2 billion all-cash deal. Elliott often takes stakes in companies involved in mergers and acquisitions, betting that it can get a better deal for shareholders.
  • Dish Network Corp., publicly reporting its Sling TV signups for the first time, said the low-cost alternative to traditional pay TV has attracted 2.2 million customers, marking progress in efforts to slow four years of subscriber losses. Dish closed out its fourth quarter with a net increase of 39,000 pay-TV customers, more than the 30,000 gain analysts had predicted. Dish had a total of 13.2 million subscribers at the end of 2017, including both Sling TV and Dish TV customers, according to a statement Wednesday. That’s about the same as the end of the third quarter.
  • South Africa’s ruling party took a political gamble by increasing sales tax ahead of elections next year as new President Cyril Ramaphosa seeks to stabilize debt and prevent a third junk credit rating. The value-added tax rate will be raised to 15 percent from 14 percent, the first time since the end of apartheid that the government has targeted a charge seen as hitting the poor hardest. Levies on fuel and luxury goods will go up, while spending will be pared back over the next three years, according to Finance Minister Malusi Gigaba.
  • Turkey signaled it’s ready for communication with Syria as Russia sought to avert a direct military clash between the two countries over a Kurdish-held enclave. Turkish intelligence officials “may establish direct or indirect contact when it is required to solve certain problems under extraordinary conditions,” President Recep Tayyip Erdogan’s spokesman, Ibrahim Kalin, said in televised remarks on Wednesday. This didn’t amount to official contacts with the “Syrian regime,” Kalin said.


*All sources from Bloomberg unless otherwise specified