December 8th, 2017

 

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks posted their biggest gain in 10 weeks, ending a 4-day decline as oil prices rebounded and a risk appetites revived. The S&P/TSX Composite Index added 107 points or 0.7 percent to 16,015.68. Energy shares gained 0.8 percent as crude rose 1.3 percent. Cenovus Energy Inc. added 2.7 percent.
• Justin Trudeau saw a third way for trade, preaching “progressive” values as a fix to a global order put on the defensive by populists like Donald Trump. But this week in China, he got a crash course on how difficult it is to sell. The Canadian prime minister wrapped up a visit to the Asian powerhouse Thursday without launching free trade talks, despite high expectations. He’s been pushing both the U.S. president and China’s Xi Jinping to adopt provisions like labor, gender and environmental guarantees to calm working-class anxiety and keep trade flowing. Instead of a receptive audience, he found a culture clash.
• Out in western Canada, the airline world is about to watch a unique business experiment. If it goes as planned, in a few years there will be a new favorite carrier battling for your airfare dollars, regardless of whether you’re a penny pincher or a rich banker. WestJet Airlines Ltd., which flies Boeing Co. 737s in Canada much the same way Southwest Airlines Co. does in the U.S., is embarking on a radical shift to become a global-network airline, replete with fancy foods, plush beds up front and nine new, spiffier airport lounges and many more top-dollar business customers. Simultaneously, it’s launching an ultra-low-cost airline called Swoop to pursue those with the smallest budgets.

 

 

World Headlines

• European stocks advance in a broad rally amid optimism over a newly-struck deal between Britain and the European Union to unlock divorce negotiations and proceed to discussing a future trade deal. The Stoxx Europe 600 Index rises 0.7%, with the index heading for a weekly gain of 1.3%. Banks advance the most, up for a second day, as the sector emerged relatively unscathed from global regulators’ final batch of post-crisis capital rules, with few lenders needing to raise major new funds.
• The dollar’s solid week continued on Friday, with the greenback gaining as the U.S. government averted a shutdown and tax reform negotiations made progress before what’s expected to be a healthy jobs report. The positive moves for many markets will be a welcome reversal for investors, who earlier in the week booked profits amid a stock rotation and waning risk sentiment. With the U.S. debt deadline nudged back, tax reform becoming more likely, and a breakdown of Brexit negotiations averted for now, solid economic data of the kind seen today could give fresh legs to the rally in risk assets.
• Asian stocks gained for a second day, tracking a broad-based rally in U.S. equities, after the regional benchmark snapped its longest string of losses in two years. The MSCI Asia Pacific Index added 0.6 percent to 169.00 percent as of 4:31 p.m. in Hong Kong, led by health care and technology stocks.
• Oil is heading for a second weekly loss as investors turn their attention to expanding U.S. oil production and gasoline stockpiles after OPEC last month agreed to extend supply cuts. Futures climbed 0.7 percent in New York, paring this week’s loss to 2.1 percent. U.S. crude output increased to a record last week, while motor fuel inventories rose more than double analysts’ forecasts, government data showed Wednesday.
• Gold’s heading for the biggest weekly drop since May as investors anticipate higher U.S. interest rates and as progress on tax reform buoys the dollar, marking a spectacular reversal for the metal which less than two weeks ago flirted with $1,300. Bullion for immediate delivery has lost 2.7 percent this week, the most since the period ended May 5. It traded at $1,246.49 an ounce at 10:07 a.m. in London, near the lowest since July.
• The November jobs report will provide the first “clean” read of labor conditions since August, as the bust-and-boom of the last two months was driven by hurricane distortions. The November results may yet show some impact, but to a much lesser degree. As such, while Bloomberg Economics characterized the prior two jobs reports as being more weather than economic reports, the latest data will finally provide some much-needed clarity regarding the underlying trend. Just as GDP growth is gradually accelerating — albeit not so dramatically as the 3% readings of the last two quarters suggest — the pace of hiring is also due to firm moderately relative to trend. This will extend the unemployment rate below 4% by the end of next year, and generate labor scarcity sufficient enough to drive wage pressures higher.
• The European Central Bank will spend 2018 guiding its bond-buying program to a gentle halt as the euro zone benefits from the most-synchronized economic growth in two decades, according to a Bloomberg survey. Policy makers, who have already agreed to halve monthly purchases to 30 billion euros ($35 billion) starting next month, will taper them to zero in the final three months of the year, the poll of economists showed. Still, most respondents said that decision won’t be taken until June or July as President Mario Draghi and his colleagues fret about upsetting markets by signaling an exit from crisis measures too soon.
• Record car production saw U.K. manufacturing extend its winning streak in October, according to figures published Friday. Factory output rose 0.1 percent from September, marking six consecutive increases for the first time since modern records began in 1997, the Office for National Statistics said. Overall industrial production was unchanged as warmer weather reduced demand for energy.
• The U.K. and the European Union struck a deal to unlock divorce negotiations, opening the way for talks on what businesses are keenest to nail down — the nature of the post-Brexit future. The deal, struck before dawn on Friday after rushed talks through the night, clears the path to the start of trade talks between the U.K. and its biggest commercial partner. The EU was quick to put down a marker of where it thinks those talks are headed and it’s far short of what May wants.
• The three biggest stories in Washington — a broad overhaul of the U.S. tax structure, a health-care makeover and a spending bill that would avert a government shutdown — all depend, more or less, on one moderate Republican senator who says she’s got a deal that could deliver them all. The only trouble is, Senator Susan Collins’s deal could unravel fast, putting the Maine lawmaker and her party in a tight spot as GOP leaders seek a major policy win in 2017.
• ICICI Securities Ltd., a unit of India’s largest private-sector lender by assets, has picked arrangers for an initial public offering that could value the company at more than 200 billion rupees ($3.1 billion), people familiar with the matter said. The brokerage arm of ICICI Bank Ltd. selected Bank of America Corp. and Citigroup Inc. to advise on the offering, which could raise at least 30 billion rupees, according to the people.
• Chinese billionaire He Xiangjian, who founded the world’s largest appliance maker Midea Group Co., is planning an initial public offering of his real estate business, according to people with knowledge of the matter. Guangdong Midea Property Co. has been speaking with investment banks about a potential Hong Kong share sale that could take place in 2018, the people said. The Chinese developer had about 77.6 billion yuan ($12 billion) of assets at the end of June, according to its interim report.
• Steinhoff International Holdings NV bonds extended losses after Moody’s Investors Service slashed the credit rating to junk in the wake of an accounting scandal that’s threatening the survival of the global furniture and clothing retailer. Moody’s cut its rating by four notches late on Thursday, highlighting “the uncertainties and implications for the company’s liquidity and debt capital structure.” The move comes as South African regulators step up probes that follow a review in Germany, where Steinhoff moved its primary listing two years ago.
• Banks emerged relatively unscathed from global regulators’ final batch of post-crisis capital rules, with few lenders needing to raise major new funds. The Basel Committee on Banking Supervision on Dec. 7 issued new rules on how banks estimate the risk of mortgages, loans and other assets. The compromise, reached after fierce lobbying by the industry, will cause “no significant increase” of overall capital requirements, the regulator said. For some big banks, capital demands will actually decline.
• Pfizer Inc., the drug giant planning to sell its consumer-products business, expects to get non-binding bids for the unit in early 2018 from global health-care and consumer companies, according to people familiar with the matter. Companies including Johnson & Johnson, GlaxoSmithKline Plc, Sanofi, Reckitt Benckiser Group Plc and Nestle SA are working with financial advisers as they consider making an offer, the people said, asking not to be identified as the information is private. The unit could fetch $15 billion to $20 billion, the people said.
• China’s top leaders said they will effectively control leverage next year and prevent major risks, further stepping up their pledges to ensure stability amid rising debt. Authorities will aim to give more support to the real economy and promote higher-quality and more efficient development, according to the official Xinhua News Agency, citing a statement late Friday after a Communist Party Politburo meeting led by President Xi Jinping.
• HSBC Holdings Plc, Europe’s biggest bank by assets, has told its dealmakers to avoid pursuing business for now with embattled Chinese conglomerate HNA Group Co., people with knowledge of the matter said. Senior HSBC officials told bankers in recent months not to pitch HNA for new merger advisory work or lend money to the conglomerate, according to the people. The bank stepped up its scrutiny of HNA this autumn, one of the people said, asking not to be identified because the information is private.
• ComfortDelGro Corp., Singapore’s largest taxi company, struck a deal to buy 51 percent of Uber Technologies Inc.’s Singapore car rental unit for S$295 million ($218 million) and form a joint venture with the ride-hailing giant. The deal for Uber’s Lion City Rentals will give ComfortDelGro control of a fleet of about 14,000 vehicles in the city-state, with the acquisition to be financed from internal funds, the Singapore-based company said in a filing after the market close on Friday. Uber will retain the remaining 49 percent.
• After spending years building up its gas-power business, General Electric Co. is trying to figure out how to keep pace in a world that’s no longer all that interested in fossil fuels. The plan to cut 12,000 jobs, or almost one-fifth of the power division’s global workforce, underscores GE’s bad bet on an old-school industry as natural gas loses favor and renewable energy gains. The company’s $10 billion deal to buy Alstom SA’s assets two years ago has compounded the pain.

 

*All sources from Bloomberg unless otherwise specified