March 9th, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks climbed and the loonie strengthened as President Trump signed an order giving steel and aluminum tariffs exemptions sparing Canada and Mexico, depending on Nafta talks. The S&P/TSX Composite Index gained 66 points, or 0.4 percent, to 15,538.70. The gain almost erased Wednesday’s losses as all sectors traded to the upside except materials, which fell almost 1 percent. Shares of technology companies rose the most as BlackBerry Ltd. continued its climb from Tuesday when it sued Facebook Inc. in federal court for patent infringement. Industrials also gained, as Morneau Shepell Inc. climbed after reporting 4Q adjusted Ebitda Wednesday that matched estimates.
• Alberta Lieutenant Governor Lois Mitchell hinted that the province may be willing to cut off oil shipments to British Columbia if the coastal province continues efforts to thwart the expansion of Kinder Morgan Inc.’s Trans Mountain pipeline. In a speech to the Alberta legislature, Mitchell spoke about efforts to persuade B.C. to drop its attempts to stall the project and alluded to former Premier Peter Lougheed’s restrictions on oil exports during a dispute with the federal government in the 1980s.
• Employment in Canada would fall by 85,000 in the year following a dissolution of the North American Free Trade Agreement, according to the Conference Board of Canada. The end of Nafta would result in a 0.5 percentage point reduction in real gross domestic product growth in the first year, followed by a recovery the year after on “a lower exchange rate and an easing in monetary policy,” the Ottawa-based research group said Friday in a report. The estimated decline in GDP is a “best-case scenario in a post-Nafta world,” given other risks, it said.
• The Democratic Republic of Congo’s promise to press ahead with a new mining code means a key battery metal could get even more expensive as miners pass on higher cobalt costs to consumers. After weeks of speculation, President Joseph Kabila said Wednesday that he’ll sign off on rules that will dramatically raise taxes and royalties on metals such as cobalt, copper and gold. That will boost income for Congo, the world’s largest source of cobalt, but potentially curb profits for firms like Glencore Plc and Randgold Resources Ltd., which operate the nation’s biggest mines.

 

 

World Headlines

• European equities erase earlier losses before edging higher, chasing gains in the U.S. and Asia as the U.S. non-farm payrolls report draws near. Automakers remain underperformers as trade-related concerns linger. EUR/USD drops below 1.2300, while MXN and CAD among the strongest major currencies after Mexico and Canada’s tariff exemption. Treasury yields rise across the curve, led by 7Y-10Y sector. Core euro-area bonds extend losses as traders build concession ahead of large supply next week. WTI crude rises though yet to regain the $61 handle. Metals trim declines as USD pulls back from day high.
• Asian shares climbed after U.S. President Donald Trump agreed to meet North Korean leader Kim Jong Un. The MSCI Asia Pacific Index rose 0.3 percent to 175.56 as of 4:18 p.m in Hong Kong. Shares rose in South Korea after the country’s National Security Council chief Chung Eui-yong told reporters at the White House that Kim is committed to denuclearization and would refrain from nuclear or missile tests. Japanese stocks ended the day higher as the yen fell the most in more than two weeks, even as the Bank of Japan stayed the course with its monetary stimulus on Friday.
• Oil headed for a second weekly decline on lingering concerns U.S. shale output will worsen a global glut and as investors weighed PresidentDonald Trump’s decision on trade tariffs. Futures in New York are down 1.4 percent this week following a government report showing American production hit a fresh record and crude inventories grew. After a week of ramping up rhetoric over trade, Trump signed tariffs on steel and aluminum imports that were more lenient than initially expected.
• Gold heads for third weekly drop as tensions on Korean peninsula ease after U.S. President Donald Trump agrees to meet North Korean leader Kim Jong Un by May.
• New Federal Reserve Chairman Jerome Powell feels good about the U.S. labor market, based on his recent congressional testimony. It’s been adding jobs at a steady clip, it’s drawn people back from the sidelines, and unemployment has plunged.
• Wall Street’s bankers have made a fortune from funneling trillions of dollars of Corporate America’s bonds into investors’ portfolios, a party that continued this week with CVS Health Corp.’s $40 billion debt sale. But there are signs that the band may soon stop playing, and the punch bowls may be disappearing. U.S. investment-grade corporate bonds are one of the worst-performing of the major asset classes so far this year, hurt by rising rates and investor fears that trade wars will hamper company profits. Bond offerings are slowing, and banks are earning some of the lowest fees on record, in percentage terms, to underwrite the debt.
• Cigna Corp.’s proposed deal for Express Scripts Holding Co.faces a drawn-out merger review as the Trump administration’s antitrust enforcers weigh the competitive effects of a wave of consolidation sweeping the health-care industry. The tie-up of the insurer and pharmacy benefit manager comes on the heels of CVS Health Corp.’s agreement to buy insurer Aetna Inc. In both combinations, the companies say they’ll become more efficient firms and help lower health-care costs. Whether customers are actually poised to benefit is the key question for antitrust enforcers.
• European Central Bank President Mario Draghi turned a spotlight on banks’ riskiest assets when he said they need to reduce their holdings of hard-to-value investments. A decade after the financial crisis, lenders in the region are still sitting on billions of dollars of illiquid holdings that could include the kind of mortgage-backed bonds and bespoke derivatives that sank lenders in the 2008 credit crisis. While they’re dwarfed by the pile of non-performing loans across the region, clearing out such assets would help pave the way to a more unified banking system in Europe and allow lenders based there to better compete with U.S. rivals.
• U.K. officials don’t expect to clinch a Brexit deal until two months before exit day, increasing the chances of chaos for executives and lawmakers. European Union chief negotiator Michel Barnier has long said he wants the withdrawal agreement done by October so that there’s time for it to go to the European and U.K. parliaments for approval before Britain leaves in March 2019. Brexit Secretary David Davis has indicated in public that the timetable could slip a bit. But speaking privately, U.K. officials say the real deadline is January.
• Uber Technologies Inc has named India’s cricket captain — one of the world’s most expensive sports celebrities — as brand ambassador, signaling that while it may be ceding ground in Southeast Asia, it’s still trying to grow in the subcontinent. Virat Kohli would be its first brand ambassador in India in a “one of its kind initiative across the Asia Pacific region”, Uber said in an announcement on Friday afternoon.
• The Bank of Japan stayed the course with its monetary stimulus on Friday at Governor Haruhiko Kuroda’s final policy meeting before his new term begins next month. The BOJ kept its yield-curve control settings and asset purchases unchanged, a result forecast by all economists surveyed by Bloomberg. And with inflation still far from the BOJ’s target, Kuroda made it clear that the current stimulus program will remain in place for a while. “We’re not thinking at all about weakening the degree of easing, or changing the current monetary easing policy framework, before we achieve 2 percent,” Kuroda said during a news conference.
• Toys “R” Us Inc. is making preparations for a liquidation of its bankrupt U.S. operations after so far failing to find a buyer or reach a debt restructuring deal with lenders, according to people familiar with the matter. While the situation is still fluid, a shutdown of the U.S. division has become increasingly likely in recent days, said the people, who asked not to be identified because the information is private. Hopes are fading that a buyer will emerge to keep some of the business operating, or that lenders will agree on terms of a debt restructuring, the people said.
• UBS Group AG boosted Chief Executive Officer Sergio Ermotti’s pay and increased the bank’s bonus pool by about 6 percent after underlying profit rose. The Zurich-based lender boosted the bonus pool for 2017 to 3.1 billion Swiss francs ($3.3 billion), according to its annual report published on Friday. Ermotti remains the highest-paid executive, earning 14.2 million francs, up from the 13.7 million francs he received in 2016. That includes 11.4 million francs in variable compensation.

 

*All sources from Bloomberg unless otherwise specified