October 31, 2017

Daily Market Commentary

 

Canadian Headlines

• Canada’s equity benchmark closed above 16,000 for the first time as a deal in the marijuana industry and higher oil prices pushed stocks to a second consecutive record. The S&P/TSX Composite index added 49 points or 0.3 percent to 16,002.78 after reaching its first new high since February on Friday. The health-care sector led the gains, rising 2.6 percent as pot producer Canopy Growth Corp. jumped 19 percent. Beer-and-wine maker Constellation Brands Inc. is buying 9.9 percent of Canopy in a deal that values it at roughly C$2.5 billion.
• One of Governor Stephen Poloz’s predecessors says the Bank of Canada’s current approach to increasing interest rates is too cautious. David Dodge, who led the Canadian central bank between 2001 and 2008, thinks Poloz should focus more on the long-neglected issue of financial stability and take the opportunity to raise rates now that the economy is running more or less at potential. Poloz kept his benchmark rate at 1 percent last week and indicated he’s in no rush to tighten, given that he still sees signs of wage and inflation slack.
• WestJet today announced its third quarter results for 2017, with record net earnings of $138.4 million, or $1.18 per fully diluted share, as compared with the net earnings of $116.0 million, or $0.97 per fully diluted share reported in the third quarter of 2016, up 19.4 per cent and 21.6 per cent, respectively. WestJet achieved its 50^thconsecutive quarter of profitability and flew an all-time quarterly record of 6.5 million guests. Based on the trailing twelve months, the airline achieved a return on invested capital of 10.2 per cent, up compared to the 9.8 per cent reported in the previous quarter.

 

 

World Headlines

• The euro declined and stocks advanced as data showed inflation unexpectedly slowed in the common-currency region, even as the economy appears to be strengthening. The European data Tuesday came amid mixed signals about the global economy. China’s official factory gauge fell this month, though the country’s economy continues to defy predictions of a sharper slowdown. The euro-area’s unemployment rate inched lower in September as the economy expanded for an 18th consecutive quarter, but consumer inflation unexpectedly slowed in October, complicating the European Central Bank’s task as it considers tightening policy.
• The dollar edged higher as investors assess developments on U.S. tax reform and await details of the next Fed chair. Meanwhile, investors trying to second-guess monetary policy in the world’s biggest economy remain fixated on the identity of the next Federal Reserve chief, with President Donald Trump expected to announce his choice this week.
• Asian shares gained in afternoon trading, buoyed by technology stocks as companies including Sony Corp. and Nintendo Co. boosted their forecasts. Samsung Electronics Co. gave the biggest boost to the regional gauge and South Korea’s benchmark after announcing a revamp of its executives.
• Oil headed for its first back-to-back monthly gain since last year amid signs that efforts by OPEC and its allies to clear a glut are progressing, and that they’ll stick with the strategy next year. Futures were little changed in New York and are up 4.8 percent this month, after rallying 9.4 percent in September. U.S. crude inventories probably declined for a fifth time in six weeks.
• Gold is set for its second monthly decline amid a stronger dollar and as investors weigh the outlook for U.S. tax changes and interest rates.
• Euro-area inflation unexpectedly slowed in October despite the bloc’s strengthening economy, underlining why the European Central Bank last week kept its exit from monetary stimulus wide open. Price growth cooled to 1.4 percent from 1.5 percent in September, falling short of the median forecast of economists in a Bloomberg survey. In a further blow to the ECB’s drive to boost inflation, the core rate dropped below 1 percent for the first time in five months.
• Apple Inc. is designing iPhones and iPads for 2018 that don’t use components from Qualcomm Inc. amid an escalating dispute between the companies, according to a person familiar with the matter. The product plans are in the early stages and may still change, said the person, asking not to be identified because the matter is private. Apple may use modem chips from Intel Corp. and MediaTek Inc. instead of Qualcomm’s, the person said. Apple made the decision amid a dispute over the iPhone maker’s access to the San Diego-based company’s proprietary technology, said people familiar with the matter.
• Congress will put Facebook, Twitter and Google under a public microscope Tuesday about Russia’s use of their networks to meddle in the 2016 election, a day after Special Counsel Robert Mueller’s criminal investigation disclosed its first indictments and guilty plea. Senators want to know how the companies failed to keep Russians from exploiting their networks and using fake accounts to spread chaos and disinformation. The three companies’ general counsels will appear before a Senate Judiciary subcommittee Tuesday, with Facebook poised to say Russians bought 3,000 Facebook ads mostly with rubles and that posts reached the newsfeeds of 126 million users.
• Qualcomm sinks 7.3% in pre-market trading on volume 15k shares; Apple is said to be designing iPhones, iPads for next year without Qualcomm’s modem chips, the WSJ reported, citing unidentified people familiar.
• Democratic mega-lobbyist Tony Podesta has stepped down from his 30-year-old firm as the indictment of President Donald Trump’s onetime campaign chairman drew attention to the company’s foreign advocacy, according to a person familiar with the matter. Podesta — whose clients have included Alphabet Inc.’s Google, Altria Group Inc., Wells Fargo & Co., Lockheed Martin Corp., Pfizer Inc. and other representatives of some of the most active industries in Washington — told a company wide meeting Monday that he was stepping down from the Podesta Group Inc., according to an earlier report by Politico.
• Aetna Inc. showed Tuesday why it would be an appetizing target for CVS Health Corp. The health insurer posted third-quarter adjusted earnings that topped the highest expectations of Wall Street analysts, even as earlier-reporting rivals had already signaled a strong quarter was coming. Aetna also boosted its 2017 profit outlook after posting low medical costs and fewer members in its money-losing Affordable Care Act products, according to a statement from the company.
• The first charges unsealed in Special Counsel Robert Mueller’s probe of the presidential election suggest a sweeping investigation, but one focus is clear: He’s building a case that Donald Trump’s campaign was in close touch with Russian officials who aimed to defeat Hillary Clinton. That hypothesis begins with a cooperating witness, George Papadopoulos, a 30-year-old junior foreign-policy adviser to the Trump campaign who pleaded guilty to lying to the FBI about contacts with Russian operatives.
• BP Plc signaled growing confidence the oil-industry downturn is coming to an end by starting to buy back shares issued to help cover its dividend during the price slump. The company, which doubled third-quarter earnings from a year earlier on robust refining margins and rising production, also pared net debt for the first time in two years. The decision to initiate buybacks, which may cost as much as $400 million a quarter.
• WPP Plc cut its sales forecast for a second time in three months as clients further reduced marketing spending, adding to evidence of the advertising industry’s distress. The world’s largest ad company said Tuesday that sales growth excluding currency swings and takeovers is expected to be “broadly flat” in 2017. London-based WPP had previously lowered its growth forecast to between zero and 1 percent.
• The Bank of Japan left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts, signaling further divergence ahead from its global peers. Governor Haruhiko Kuroda and the board voted on Tuesday to maintain the central bank’s yield curve control program and asset purchases, a result predicted by all 43 economists surveyed by Bloomberg. The vote was 8-1, with new board member Goushi Kataoka dissenting.
• Samsung Electronics Co. has cleaned out its most senior executives just hours after posting record profit and doubling investor payouts. Lee Sang-hoon has been nominated as the next board chairman while all three co-chief executive officers were replaced in a massive shakeup of the top ranks. The announcement came hours after Samsung topped profit estimates and said it would boost dividends to 9.6 trillion won ($8.5 billion) in each of the next three years.
• Carlyle Group LP’s third-quarter profit more than doubled from a year earlier, topping analyst estimates as buyout, real estate and energy holdings gained. Economic net income, which reflects both realized and unrealized investment gains, was $192.3 million, or 56 cents a share, compared with $69.7 million a year earlier, Washington-based Carlyle said in a statement Tuesday. Analysts expected earnings of 51 cents a share on average, according to 12 estimates compiled by Bloomberg.
• BNP Paribas SA couldn’t avoid the trading slump that dragged down results at its biggest U.S. and European competitors in the third quarter, as low interest rates and tepid demand from clients curbed activity. Income from trading bonds, currencies and commodities at BNP fell 26 percent to 801 million euros ($932 million) from a year earlier, based on figures the Paris-based bank published on Tuesday. While BNP did increase revenue from buying and selling stocks, its global-markets business posted the lowest quarterly sales in almost two years and missed the average of five analyst estimates compiled by Bloomberg News.
• China Literature Ltd.’s Hong Kong initial public offering has attracted so much demand from individual investors that it will have to reallocate shares originally earmarked for institutional money managers, said people with knowledge of the matter. Retail investors have placed orders for more than 100 times the stock initially available to them in the IPO, which could raise as much as $1.1 billion, said the people. The portion of the deal reserved for institutional money managers has also been oversubscribed several times, the people said, asking not to be identified because the information is private.

 

*All sources from Bloomberg unless otherwise specified