December 19th, 2017

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks posted their biggest gain in more than a week, joining a global rally after U.S. Republicans reached an agreement on wide-ranging tax cuts. The S&P/TSX Composite Index rose 90 points or 0.6 percent to close at 16,131.64 after briefly hitting a record high earlier in the day. Health-care stocks jumped 4.6 percent as Valeant Pharmaceuticals International Inc. gained 7.4 percent.
• Mattamy Homes Ltd., North-America’s largest private residential homebuilder, is boosting investments in the U.S. as regulatory excess sends land prices — and frustration — skyrocketing in Ontario, chief executive officer Peter Gilgan said. Mattamy expects to generate more than half its business from the U.S. in the next five years, including the southern states of Arizona, California and Florida, up from about one-third now, Gilgan said in an interview at Bloomberg’s Toronto office. The Toronto-based company posted annual revenue of C$3.2 billion ($2.5 billion) for its fiscal year ended in May.
• Boeing Co. warned that its 737 Max 7 passenger jet may not survive if Bombardier Inc. continues to sell aircraft below fair-market value, as the two planemakers square off in a case that’s putting profits and diplomatic ties on the line. “Our Max 7 is at extreme risk,” Kevin McAllister, the head of Boeing’s commercial airplanes division, told a panel at the U.S. International Trade Commission during a daylong hearing Monday. “If you don’t level the playing field now, it will be too late.” The ITC, a quasi-judicial body that’s expected to issue a final ruling late next month, heard arguments on whether American industry was harmed by Bombardier’s sale of its new C Series jet at what Boeing calls an unfairly low price to Delta Air Lines Inc. Boeing alleges Bombardier can undercut offerings on the U.S. market because of subsidies in Canada.

 

 

World Headlines

• European stocks are little changed near a six-week high as U.S. lawmakers move closer to passing a tax overhaul legislation. The Stoxx Europe 600 Index rises less than 0.1%, with losses in energy shares offsetting gains in telecom and automaker shares. Republican Senator Susan Collins of Maine said she’ll back the GOP tax bill, a move that all but clinches the votes necessary to pass the legislation.
• U.S. equity futures edged higher as the prospects for tax cuts in the world’s largest economy continued to buoy sentiment. As markets grind toward the end of a stellar year, the biggest focus for investors still chasing gains is the progress of U.S. tax reform, which is inching toward a denouement. The House is scheduled to vote Tuesday on the tax bill following a floor debate that morning. It then goes to the Senate, where Republican leaders intend to bring it up as soon as they get it.
• Asian stocks advanced to their highest in nearly three weeks amid rising optimism that U.S. Republicans will be able to pass their tax plan this week. The MSCI Asia Pacific Index climbed 0.2 percent to 171.94 as of 11 a.m. in Hong Kong , the highest level since Nov. 29.
• Oil traded near $57 a barrel for a third day before data expected to show that surplus crude inventories in the U.S. continued to diminish as global markets rebalance. Futures rose 0.5 percent in New York after slipping 0.2 percent on Monday. Inventories probably lost 3 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday.
• Gold climbs for second day as dollar retreats while investors await vote on U.S. tax bill, which now looks likely to become President Donald Trump’s first big legislative win.
• McDermott International Inc. agreed to acquire Chicago Bridge & Iron Co. in a $6 billion all-stock deal to combine two major engineering-and-construction companies catering to the energy industry. Shareholders of McDermott will control 53 percent of the merged entity with the rest going to CB&I investors, the companies said in a statement Monday. The combination will have annual sales of about $10 billion and a contract backlog valued at $14.5 billion.
• The Bloomberg Dollar Spot Index slipped for a second day as investors took money off the table before the House and the Senate vote on the U.S. tax bill. The index has now given back all of its gains from Friday. Major currencies stayed within recent ranges, with only short-term investors actively participating and macro as well as real-money accounts sidelined as the holiday season approaches, according to traders in Europe and London. A measure of expected volatility in dollar-yen slid to the lowest in more than three years as accommodative central bank policies suppress currency swings.
• Congressional Republicans kicked off the final leg of their six-week legislative sprint to overhaul the U.S. tax code and deliver a major policy victory for President Donald Trump before year’s end. The House is scheduled to vote Tuesday on the tax bill and Senate leaders intend to bring the measure up as soon as they get it.
• Belgian food distributor Greenyard NV said it’s in advanced negotiations to acquire U.S. fruit and vegetable seller Dole Food Co. amid a year-end flurry of deals in the industry. Westlake Village, California-based Dole, which ships pineapples and bananas to the U.S. and packages salads, may be valued at about $2.3 billion including net debt, according to Bloomberg Intelligence. Greenyard, which ships 4.3 billion euros ($5.1 billion) worth of fresh and frozen fruit, vegetables and flowers annually, didn’t disclose financial details of the possible purchase.
• The Federal Reserve published a fresh set of economic forecasts last week covering the next three years. Economists have been trying to make sense of the 2018 outlook ever since. Here’s the conundrum. Fed officials raised their forecast for growth by four tenths of a percentage point for next year, to 2.5 percent. That’s comfortably above the 1.8 percent rate they estimate the economy can sustain in the long run. The unemployment rate falls just two tenths more under that robust forecast to average 3.9 percent in the fourth quarter of 2018 — well under their estimate of full employment. Inflation moves up to just under 2 percent.
• Petrobras, carrying the largest debt load among global oil majors, is rolling a year’s worth of promises into a week of significant announcements aimed at trimming the gap before an unpredictable presidential campaign starts to gear up. The dominoes have fallen one-by-one: On Monday, Petroleo Brasileiro SAsold a $2.9 billion stake in one of its largest legacy fields to Norway’s Statoil ASA. Three days earlier, the Brazilian state-run company gained $1.5 billion in an initial public offering of its fuel subsidiary.
• Ukrainian President Petro Poroshenko is set to propose a new central bank governor this week, filling a position that’s been vacant since May as the government struggles to get its $17.5 billion bailout back on track with the International Monetary Fund. Poroshenko will reveal his nomination in the next two days, with parliament to vote on his proposal on Dec, 21 after listening to a report from the previous governor, Valeriya Gontareva, according to a member of the president’s party. Names to have already been mentioned include Acting Governor Yakiv Smoliy and Volodymyr Lavrenchuk, chief executive officer of Raiffeisen Bank International AG’s local unit.
• Bank of America Corp. will make markets in bonds, currencies, derivatives, equities and exchange-traded funds through a new type of trading venue being ushered in by Europe’s MiFID II overhaul of financial regulations. The bank will become a systematic internalizer, or SI, from MiFID’s Jan. 3 start date, it said in an emailed statement. Clients trading European Union securities with Bank of America’s SI will escape MiFID II’s onerous trade-reporting requirements, potentially making the SI attractive to fund managers seeking to trade bonds and off-exchange derivatives.
• The U.S. food industry has announced $42 billion in deals this year, but it could just be a taste of the next wave of consolidation coming in 2018. Companies from Kraft Heinz to Conagra are seen as possible suitors next year as food giants struggle to generate growth. They face an array of challenges: shifting eating tastes, a resurgent Wal-Mart playing tough with suppliers and Amazon’s expansion into the grocery business. The latest round of deal speculation was sparked by two food-industry acquisitions announced Monday. Campbell Soup Co. agreed to acquire Snyder’s-Lance Inc., a maker of potato chips and pretzels, and Hershey Co. will buy Amplify Snack Brands, best known for SkinnyPop popcorn.
• Saudi Arabia announced its budget deficit narrowed in 2017 to below 10 percent of economic output for the first time since the collapse in oil prices battered public finances, as the kingdom prepared to unveil what is expected to be an expansionary budget for next year. The shortfall dropped to 8.9 percent of gross domestic product from almost 13 percent in 2016, the official Saudi Press Agency reported late on Monday, citing Finance Ministry official Yarub al-Thunyan. The decline is in line with the median estimate of 11 economists surveyed by Bloomberg.
• Private equity fund XIO Group is exploring options including a sale for its Lumenis Ltd. medical-laser business, little more than two years after acquiring the Israeli company, according to people familiar with the matter. The fund, led by Chinese money manager Athene Li, has hired Credit Suisse Group AG and China International Capital Corp. to gauge interest in Lumenis from potential buyers in China and elsewhere, the people said, asking not to be identified because the discussions are private. XIO is seeking as much as $1 billion, one of the people said.
• Uber Technologies Inc. is set to reach the end of the road in a legal battle over a question that’s reached the European Union’s top court — is the world’s most valuable startup a taxi company or not? Uber has argued that it’s a technology platform connecting passengers with independent drivers, not a transportation company subject to the same rules as taxi services. The decision is being closely watched by the technology industry because it could set a precedent for how firms in the burgeoning gig economy are regulated across the 28-nation bloc.
• It’s one of the most crowded trades for good reason. But dizzying returns and a surge of inflows have put emerging markets on a narrow precipice. After several false starts, economists are predicting next year will finally be the one in which borrowing costs get a significant leg-up. The International Monetary Fund is warning it could mark the tipping point for emerging-market bond funds sitting on the biggest annual inflows since the financial crisis. Investors plowed about $75 billion of cash into emerging-market bond funds this year as central banks delayed curbing monetary stimulus that has elevated the flow of liquidity to developing economies over the past decade. A pickup in global growth that pulled Russia, Argentina and Brazil out of recession also helped to buoy sentiment, driving returns of 19 percent since the end of 2015 versus 12 percent in the period for a global credit index.
• The world’s biggest polluter is going to need the world’s biggest carbon market in its fight against smog. China on Tuesday unveiled a trading system for carbon emissions that surpasses the European Union in size and scope, even after the Asian nation scaled back its ambitions for the program. The announcement was a boost for global efforts to rein in the climate-warming pollutant, as the U.S. pulls back from a leadership role and trading systems elsewhere are still struggling.

 

 

*All sources from Bloomberg unless otherwise specified