February 28th, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks closed lower after oil prices tumbled, while the loonie weakened to the lowest point of 2018 as investors awaited the federal budget. The S&P/TSX Composite Index lost 44 points or 0.3 percent to 15,671.15. Materials led to the downside, falling 1.4 percent as gold miners retreated. Detour Gold Corp. lost 5.3 percent and Agnico Eagle Mines Ltd. fell 3.8 percent.
• Bill Morneau may have passed up his last chance to balance Canada’s budget. Prime Minister Justin Trudeau’s finance chief released his third fiscal plan on Tuesday in circumstances that have hardly been better. Canada’s economy is near full capacity, led the Group of Seven in growth last year and unemployment recently hit a four-decade low — all of which Morneau boasts about. He couldn’t have asked for better conditions to move toward what was once his goal: balance. And yet Morneau’s budget Tuesday plots no such course. New spending on indigenous peoples, military veterans, scientific research and gender equity have eaten up windfalls. Even with new tax revenues from marijuana, tobacco and private corporations, Morneau wasn’t able to accelerate the deficit-reduction path, totaling C$98 billion ($77 billion) over six years.
• National Bank beat market expectations as it reported a first-quarter profit of $550 million, up 11 per cent from $497 million a year ago. The Montreal-based lender said the profit amounted to $1.46 per diluted share for the quarter ended Jan. 31, up from $1.34 per share in the same quarter a year earlier. On an adjusted basis, National Bank earned $1.48 per diluted share for the quarter, up from $1.35 per diluted share in the same quarter in 2017. Analysts had expected adjusted diluted earnings per share of $1.42.
• Commercial-property deals in Canada reached a record for a second straight year and show no signs of slowing as investors continue seeking high-yield assets in a haven from global turmoil, according to CBRE Group Inc. Transactions last year totaled about C$43 billion ($34 billion), up from 2016’s record of C$34.7 billion, the real estate services firm said in a statement. Historically strong fundamentals, such as high rents and low vacancies, are likely to improve even further, pointing to potentially even higher investment in 2018, according to CBRE.

 

 

World Headlines

• European stocks drop, following overnight losses in U.S. peers, after Federal Reserve Chairman Jerome Powell’s upbeat note about the economy raised bets for four rate hikes this year. The Stoxx Europe 600 Index falls 0.3%, extending its worst monthly drop since June 2016. All industry groups decline except insurers, which are boosted by a gain in Admiral after its profit beat the highest estimate.
• S&P 500 index futures edged higher, however, signaling a respite when U.S. markets open. Investors’ focus now shifts to U.S. GDP data due Wednesday after Powell opened the door to four Fed rate increases this year, saying his personal outlook for the economy had strengthened. U.S. and European bond yields have soared in recent months amid speculation that the Fed’s monetary policy will be tightened at a faster pace, but for equity investors, that’s testing nerves. Global stocks are poised for their worst month since January 2016 after years of central-bank stimulus push up valuations.
• Asian shares dropped for a second day, with energy and material companies leading declines, after Treasuries and U.S. equities fell on Federal Reserve Jerome Powell’s inflation and interest rate hike comments. The MSCI Asia Pacific Index retreated 1.1 percent at 4:42 p.m. in Hong Kong, wiping out this week’s gains.
• Oil is poised for its first monthly decline in half a year as January’s rally fades on growing fears over booming U.S. shale supply. Futures in New York were little changed, putting them on course for a 2.8 percent drop in February. An industry report was said to show U.S. oil inventories rose last week, which would be the fourth expansion in five weeks if confirmed in government data. The head of OPEC plans to dine with shale producers in Houston next week at a time when America is pumping at record levels and threatening the group’s efforts to curb a global glut.
• Gold holds biggest drop in a week, heading for monthly decline, after Federal Reserve Chairman Jerome Powell’s comments on the strength of the U.S. economy were perceived to be hawkish, boosting outlook for interest rate rises.
• The U.S. Commerce Department slapped stiff duties on aluminum foil from China after concluding that the country’s producers are receiving unfair subsidies and dumping the product in the American market. Duties from 49 percent to 106 percent will be imposed on Chinese aluminum foil for selling the product in the U.S. below fair market value, the department said in a statement Tuesday. The Trump administration also set duties of 17 percent to 81 percent for the unfair subsidies that the U.S. has concluded Chinese producers receive.
• China plans to expand its unprecedented crackdown on financial risk to money-market funds by capping how much investors can redeem in a day, people familiar with the matter said. The limit for same-day redemption will be set at 10,000 yuan ($1,580), said the people, who asked not to be identified as they’re not authorized to speak publicly. The same restriction will apply when investors use their assets in money-market funds directly for payment and consumption, the people said.
• U.S. Treasury Secretary Steven Mnuchin said Tuesday he had “begun to have very high-level conversations” on the Trans-Pacific Partnership, and rejoining the regional trade pact is an option for PresidentDonald Trump. Trump repeatedly attacked the TPP deal on the campaign trail and pulled the U.S. out of it soon after he took over early last year. However, last month he expressed openness to rejoining if the terms were improved. Mnuchin told the U.S. Chamber of Commerce in Washington that this was significant.
• Amazon.com Inc. has agreed to buy connected-doorbell startup Ring Inc. for about $1 billion, a person familiar with the matter said. The move helps Amazon expand further into the consumer market, including providing security for package deliveries. JPMorgan Chase & Co. advised Ring on the sale, said the person, who asked not to be identified because the matter is private.
• The U.S.’s main commodities regulator recently told its employees that they are allowed to invest in cryptocurrencies, a determination that came weeks after the agency began overseeing Bitcoin futures. Under the Commodity Futures Trading Commission’s ethics guidance, workers can trade digital tokens as long as they don’t buy them on margin or have inside information gleaned from their jobs. Investing in the Bitcoin futures that the CFTC polices, however, is barred.
• Mexico will place retaliatory tariffs on U.S. goods if President Donald Trump includes it on a list of nations that would face steel tariffs, according to a person close to the Latin American country’s position. Mexican Economy Minister Ildefonso Guajardo plans to discuss the issue with U.S. Commerce Secretary Wilbur Ross in a meeting in Washington on Wednesday, according to the person, who asked not to be named because the meeting is private. A 2009 trucking dispute, when Mexico imposed retaliatory tariffs on about 90 American products totaling $2.4 billion worth of annual exports, serves as an example of what Mexico can do, the person said.
• Chinese billionaire Li Shufu’s Geely Group structured the purchase of its 7.3 billion-euro ($9 billion) stake in Daimler AG through complex derivative transactions that allowed the buyer to build a large equity holding while limiting the risks, people with knowledge of the matter said. Geely entered into a so-called collar trade for the entire stake, making this the largest deal of its kind in a single stock globally, the people said, asking not to be named as the financing details haven’t been disclosed. Bank of America Corp. led the transaction with the help of Morgan Stanley, they said.
• A group of investors led by Cerberus Capital Management agreed to acquire regional lender HSH Nordbank AG from two German states for about 1 billion euros ($1.2 billion), at least the fifth purchase of a German bank in the past year that involved the U.S. private-equity firm. The group of buyers, which includes J.C. Flowers & Co. as well as Austrian lender Bawag, GoldenTree Asset Management and Centaurus Capital LP, will acquire 94.9 percent of the shares, according to a statement posted Wednesday on the website of the state of Hamburg.
• A fight is looming between the U.K. and the European Union over the terms of Britain’s post-Brexit transition period a month before a deal is supposed to be reached, with the EU’s chief Brexit negotiator Michel Barnier saying many areas of disagreement remain. The transition phase “must be short, it must be clearly specified, and this is clearly the line that we are pursuing,” Barnier told reporters in Brussels. “This is one of the points where we see an area of divergence with the U.K.”
• The fallout from India’s biggest banking fraud is spreading to the market for trade financing, as foreign lenders become more reluctant to accept the guarantees from their local counterparts that underpin the loans. Citigroup Inc., Deutsche Bank AG, Standard Chartered Plc and HSBC Holdings Plc are among banks reducing exposure to these transactions, used by smaller companies to access short-term dollar funding, said people with knowledge of the matter. As questions are raised about the creditworthiness of guarantees from Indian state-run banks, rates have risen by as much as 0.5 percentage point for some types of financing, the people said, asking not to be identified as the details are private.
• The continued boom in U.S. housing prices seems to favor Home Depot Inc. over rival Lowe’s Cos. Lowe’s, the second-largest U.S. home-improvement chain, reported fourth-quarter earnings that missed analysts’ estimates, sending the shares down as much as 6 percent in premarket trading. After almost a decade of rising property values, Americans are increasingly seeing their homes as investments, and renovating them at a record pace. Home-improvement chains have benefited, with sales growth outpacing much of the retail industry. But Lowe’s isn’t getting as much of a lift as its larger competitor.
• Billionaire T Ananda Krishnan’s Aircel Ltd. is poised to file for bankruptcy protection from creditors, people with knowledge of the matter said, which would make the phone operator the latest casualty in India’s campaign to go after delinquent borrowers. The unit of Krishnan’s Maxis Communications Bhd. will submit the request to the National Company Law Tribunal by as soon as Wednesday, according to the people, who asked not to be identified because the information is private. It would be the first time a major company made such a move on its own in India because banks had previously initiated bankruptcy proceedings in the past.
• Noble Group Ltd.’s auditor said there was material uncertainty that could cast “significant doubt” over the commodity trader’s ability to continue operating after posting a full-year loss of $4.9 billion, even as it seeks to finalize a debt-for-equity rescue plan. In its independent auditor’s report attached to Noble’s earnings on Wednesday, Ernst & Young LLP pointed to the trader’s massive loss, bank debt and negative net assets of about $800 million as indicating the “existence of material uncertainty which may cast significant doubt over the group’s ability to continue as a going concern.”

 

*All sources from Bloomberg unless otherwise specified