April 18th, 2018

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks closed at the highest level in nearly two weeks but were unable to keep pace with the gains in their U.S. counterparts. The S&P/TSX Composite Index added 53 points or 0.4 percent to 15,353.30, the highest close since April 5. Technology stocks gained 2.8 percent, the most in more than two months, as strong results from Netflix Inc. boosted the sector in both Canada and the U.S.
• Canadian Prime Minister Justin Trudeau and Alberta Premier Rachel Notley have signaled they could put money behind Kinder Morgan Inc.’s Trans Mountain pipeline expansion as they vow to make sure it gets built. Here are ways they could do it as the company threatens to abandon the C$7.4 billion ($5.9 billion) project amid steadfast opposition in British Columbia, the province that the line crosses to take crude from Alberta’s oil sands to the Pacific Coast. Notley said her province would be willing to invest directly in the project, while Finance Minister Bill Morneau has hinted that a stake purchase by the federal government wasn’t ruled out.
• Ivanhoe Cambridge Inc., the real estate arm of one of Canada’s biggest pension funds, plans to increase its assets by a third with a bet on the booming warehouse space. The unit of Caisse de Depot et Placement du Quebec aims to expand its assets under management to C$80 billion ($64 billion) over the next five years by adding apartments, offices, and industrial space President Nathalie Palladitcheff said.
• A potential strike by Canadian Pacific Railway Ltd. workers threatens to derail a recovery in Alberta’s beaten-down heavy oil prices. Canadian Pacific said on Friday that a new labor agreement with thousands of train conductors and other workers remains elusive as an April 21 deadline neared for when a work stoppage could begin. A strike would come at a critical time for Western Canadian oil producers. The heavy crude they pump is selling for $16.60 a barrel below the U.S. benchmark, from a discount of more than $30 in February. Oil flows out of Alberta to the U.S. have improved after pipeline and rail bottlenecks earlier in the year stymied exports.

 

 

World Headlines

• European equities hold steady at the open, with basic resources shares rising, as corporate fundamentals outweigh global trade concerns.
• U.S. Index futures point to a higher open after Asian equities rallied on a strong start to the U.S. corporate earnings season and easing geopolitical tensions. A surprise move by China’s central bank to cut the reserve requirement ratio for some lenders provided another positive. The S&P 500 Index rose to the highest in four weeks on Tuesday as better-than-expected earnings from Netflix spurred a rally in the FANG block of tech giants.
• Asian equities rose for the first time in three days as a strong start to the U.S. corporate earnings season bolstered investor sentiment. The MSCI Asia Pacific Index climbed 0.7 percent to 174.38 as of 4:14 p.m. in Hong Kong. Equity gauges in Japan climbed to the highest levels in four weeks. The Shanghai Composite Index halted a four-day slide as lenders rallied after the central bank’s surprise move to cut the reserve requirement ratio for some banks.
• European equities hold steady at the open, with basic resources shares rising, as corporate fundamentals outweigh global trade concerns. The Stoxx Europe 600 Index rises 0.1%, with 326 shares climbing. Glencore and Nestle are among the biggest advancers. Sentiment also gets a boost from geopolitics, with President Donald Trump saying the U.S. and North Korea have started direct talks at “extremely high levels” in advance of a planned meeting between the two nations’ leaders this summer.
• Crude rose as the drop in U.S. inventories reported by an industry group helped to sustain a rally spurred by geopolitical risks. Futures in New York rose as much as 1 percent while Brent gained to within a dollar of last week’s three-year high. U.S. crude and gasoline inventories fell last week, the American Petroleum Institute was said to report on Tuesday, in contrast to forecasts for a build in U.S. government data later. OPEC and Russia will probably look at ways to prolong their cooperation on cuts when they meet in Saudi Arabia this week.
• Gold’s advance is running out of steam as strong corporate earnings help lift equities, quelling investor appetite for haven assets.
• Euro-area inflation accelerated less than initially estimated last month, a setback for European Central Bank policy makers as they consider winding down unprecedented stimulus. Consumer prices in the 19-country bloc rose just 1.3 percent in March from a year earlier, according the European Union’s statistical office. While that’s up from 1.1 percent the previous month, the reading falls short of a 1.4 percent initial estimate.
• CIA Director Mike Pompeo traveled to North Korea last week to meet with Kim Jong Un in advance of a possible summit on denuclearization, President Donald Trump said. “Meeting went very smoothly and a good relationship was formed,” Trump said in a Twitter posting Wednesday morning. “Details of Summit are being worked out now. Denuclearization will be a great thing for World, but also for North Korea!” Pompeo — who’s awaiting confirmation as secretary of state — is the highest-ranking U.S. official to visit the isolated nation since former Secretary of State Madeleine Albright in 2000.
• U.K. inflation slowed to the weakest in a year in March, raising questions about how quickly the Bank of England will increase interest rates. Consumer prices rose 2.5 percent from a year earlier, down from 2.7 percent in February, the Office for National Statistics said on Wednesday. That’s less than economists estimated and below the BOE’s most recent forecast of 2.8 percent for the same period. Core inflation cooled to 2.3 percent, also the lowest rate in a year.
• After U.S. sanctions crippled an entire Russian industry and air strikes in Syria threatened the first direct clash between nuclear superpowers since the Cold War, Vladimir Putin is seeking to dial down the tension. Russia’s leader wants to give President Donald Trump another chance to make good on pledges to improve ties and avoid escalation, according to four people familiar with the matter. One said the Kremlin has ordered officials to curb their anti-U.S. rhetoric.
• OPEC and Russia will meet in Saudi Arabia this week after all but banishing a global oil glut. While looming political crises threaten to tighten supplies further, the group seems determined to keep its cuts in place. Almost 16 months of output curbs by the Organization of Petroleum Exporting Countries and its partners have seen crude rally to a three-year high near $70 a barrel. That’s replenishing their coffers after the worst oil slump in a generation, encouraging the producers to extend their intervention even as Venezuela’s petro-economy implodes and Donald Trump threatens Iran with sanctions.
• Analysts were caught on the hop by Total SA’s acquisition of French utility Direct Energie though most said the deal makes sense as the oil giant expands into the utilities business to diversify its portfolio. Total’s shares climbed as much as 0.8 percent on Wednesday while Direct Energie surged as much as 31 percent, trading at the offer price of 42 euros a share as of 10:19 a.m. in Paris. Following completion of the 1.4 billion-euro ($1.7 billion) deal, Total will file a mandatory tender offer at the same price per share, a 30 percent premium to Direct Energie’s closing price on Tuesday.
• European Union President Donald Tusk stepped up the pressure on the U.K. to come up with a solution to prevent a hard border on the island of Ireland after Brexit by warning that all deals, including the transition period agreement, would otherwise be canceled. “The U.K.’s decision on Brexit has caused the problem,” Tusk told the European Parliament in Strasbourg, France, on Wednesday. “The U.K. will have to help solve it.”
• Starwood Capital Group LLP plans to back the long-term expansion of Austrian commercial-property firms CA Immobilien Anlagen AG and Immofinanz AG with “substantial capital” after it completes an initial investment in the companies over the next few weeks. Barry Sternlicht’s global property investment company formally offered to buy as much as 26 percent of CA Immo and up to 5 percent of Immofinanz for about $1 billion in total, it said in a statement on Wednesday. Further investment in the companies, which own office and retail properties in Germany, Austria and eastern Europe, may follow, Starwood said.
• European Union Trade Commissioner Cecilia Malmstrom said the U.S. has offered no signal it’ll prolong a waiver for the bloc from controversial metal tariffs, highlighting the persistent risk of a trans-Atlantic trade war. Malmstrom said she’s still pressing U.S. Commerce Secretary Wilbur Ross for a permanent EU exemption from the levies on foreign steel and aluminum that President Donald Trump imposed last month on national-security grounds. He granted a waiver to the 28-nation bloc until May 1 and left open the possibility of a longer exemption.
• China’s decision to stop putting foreign carmakers in bed with local partners is unlikely to prompt a major unwind anytime time soon. But it dangles the lucrative draw of future wholly-owned future factories. Such a move would benefit new competitors like Tesla Inc. and late China-arrivals like Fiat Chrysler Automobiles with no or limited joint-venture production in China. Luxury brands such as BMW and Daimler AG’s Mercedes, which still pull in a significant imports despite a 25 percent duty, could also be tempted.
• American taxpayers received an extra day to file their returns electronically after a computer malfunction disrupted the Internal Revenue Service’s website. The IRS said in a statement on Tuesday evening that its processing systems were back in operation, and that the new deadline was Wednesday.
• AT&T Inc. and Time Warner Inc. may have gained an edge in the biggest merger trial in decades as the companies have exposed weaknesses in the Trump administration’s antitrust lawsuit to block their $85 billion merger, according to lawyers and economists following the battle. As the U.S. rested its case Tuesday in the fifth week of the trial, AT&T and Time Warner have poked holes in the Justice Department’s claim that the deal would give them the power to raise prices on cable and satellite-TV competitors, and disadvantage competitors by coordinating with Comcast Corp., a major rival that went through a similar merger when it bought NBCUniversal.
• The European Central Bank is pushing Brussels policy makers for major new powers over clearinghouses in the U.S. and London post-Brexit, upping the stakes in a battle between global regulators on oversight of the multi-trillion-dollar market. The ECB wants the ability to demand changes at a foreign clearinghouse during a future crisis, according to a paper from the central bank that was seen by Bloomberg News. For example, the ECB would be able to require a big clearinghouse in the U.S. or the U.K. after Brexit to collect more collateral from clients and increase its liquidity buffers.

 

*All sources from Bloomberg unless otherwise specified