February 2nd, 2018
Daily Market Commentary
- Canadian stocks fell to their lowest close since October after a 4th day of declines, while government bond yields rose to the highest since mid-2014. The S&P/TSX Composite Index lost 91 points or 0.6 percent to 15,860.92. The 4-day retreat was the most in nearly a year. Energy stocks lost 0.6 percent as the gap between Canadian crude prices and West Texas Intermediate hit the widest since 2013. Financials fell 0.6 percent and health-care stocks tumbled 4.4 percent, led by a decline in cannabis shares.
- Alberta is striking back at British Columbia after the neighboring Canadian province proposed restricting shipments of oil-sands crude in a bid to halt Kinder Morgan Inc.’s Trans Mountain project. Premier Rachel Notley is suspending talks about increasing power purchases from British Columbia that could have resulted in Alberta buying as much as C$500 million ($410 million) more of electricity a year from B.C., she said at a press conference in Edmonton on Thursday. Low natural gas prices make Alberta “quite able” to manage its electricity needs on its own, she said.
- Motorola Solutions Inc. sees an opening to take advantage of a backlash against Chinese-made technology products with its latest acquisition. The Chicago-based company agreed to pay about $1 billion including debt for Avigilon Corp., which makes security cameras and video analytics systems for airports, railroads, cities and other commercial enterprises, according to a statement Thursday. Motorola agreed to pay C$27 a share for Vancouver-based Avigilon, an 18 percent premium over its last price of C$22.85.
- China’s clampdown on its crypto industry is sending miners scurrying for a new home. They’re finding one in Canada, lured by its cold climate, lots of clean, cheap power and a welcoming market for raising capital. In Farnham, a Quebec town 35 kilometers (21 miles) north of the Vermont border, nearly 5,000 machines are packed into a former carpet factory run by Backbone Hosting Solutions Inc. The company, known as Bitfarms, says it’s making more than $250,000 a day from minting Bitcoin, other virtual currencies and fees at four sites in the province. That makes it a major consumer of electricity.
- European stocks retreat for a fifth day as traders assess earnings reports from heavyweights including Deutsche Bank AG and mull the strength of this year’s rally in global equities. The Stoxx Europe 600 Index drops 0.5%, heading for a weekly drop of 2.2%, the steepest since August. The gauge has trimmed its 2018 advance to 0.8%. Deutsche Bank falls 6% after revenue at the lender declined to the lowest in seven years in the fourth quarter.
- Traders will now be looking to U.S. jobs data, which may offer support to both stocks and bonds if the trend of healthy growth in hiring but low wage inflation continues. Equities are being tested by the surge in bond yields, with some fund managers saying 3 percent U.S. 10-year rates would signal a bond bear market. The level is seen by many stock-watchers as a potential trigger for acorrection in equities.
- Asian equities dropped, with the benchmark regional gauge poised for its worst weekly loss since September 2016. Technology stocks fell the most, mirroring declines by U.S. peers, while Japanese shares retreated after the Bank of Japan’s offer to buy bonds failed to shore up sentiment. The MSCI Asia Pacific Index lost 0.7 percent to 183.14 as of 4:57 a.m. in Hong Kong, heading for a weekly drop of 2.2 percent.
- Brent crude traded near $70 a barrel as the specter of expanding U.S. supply was weighed against Wall Street banks’ growing faith in a price rally. Benchmark Brent is on course to end the week down 1.3 percent, after being whipsawed by concern about rising American production and optimism over rosy outlooks painted by forecasters including Goldman Sachs Group Inc.
- Gold steady as investors await U.S. employment data Friday for further clues on monetary tightening.
- China moved a step closer to the long-awaited opening of its commodity futures markets as the country’s regulator said it approved a plan to allow foreign investors to trade directly in mainland iron ore contracts. Preparation work to enable overseas investors participate in futures on the Dalian Commodity Exchange is still in progress, Chang Depeng, a spokesman for the China Securities Regulatory Commission, said at a briefing on Friday. The regulator didn’t specify how long it would be before contracts are available to foreign investors, or give other details.
- Bitcoin fell below $8,000 as a miserable 2018 continued for cryptocurrencies, with investors confronting a mounting list of concerns about the future of the industry. The largest digital currency dropped 12 percent to $7982 at 11:45 a.m. in London, the lowest since Nov. 24, according to consolidated Bloomberg pricing. Rival coins Ripple, Ether and Litecoin tumbled at least 18 percent as losses continued to spread across cryptocurrencies.
- The U.K. must not enter into a new customs union with the European Union after it leaves the bloc, Trade Secretary Liam Fox said, setting a new red line for Theresa May’s negotiations with Brussels and her own party on Brexit. Fox, a long-standing euroskeptic, told Bloomberg that the U.K. must not sign up to the EU’s common external tariff, which binds all EU member countries to the same rates. His comments follow a report in the Financial Times that said May’s officials are considering keeping Britain in a new customs union, and the external tariff arrangement.
- Amazon.com Inc. Chief Executive Officer Jeff Bezos can take a victory lap. Years of investments in warehouses and robots and data centers and gadgets — that have often tested investor patience — paid off big for Amazon over the holidays. Shoppers threw their money at the e-commerce giant, giving the company its strongest fourth-quarter sales growth in eight years and its most-profitable quarter ever. The results on Thursday reassured investors that Amazon can spend money in areas such as advertising, entertainment and groceries while maintaining its dominance in online shopping and cloud computing. Revenue growth is accelerating even as the company is expected to cross $200 billion in sales this year and make more money from its original U.S. online retail business.
- Apple Inc. and Amazon.com Inc. investors were girding for the worst Thursday afternoon ahead of financial results from two of the biggest bellwethers in tech. But holiday sales at both companies defied the skeptics, and market relief ensued. The main exchange-traded fund tracking the Nasdaq 100 Index gained as much as 0.8 percent in after-hours trading. After closing lower on Thursday, the PowerShares QQQ fund had been on track for its worst weekly decline since June amid rising volatility. An options-derived gaugeof turbulence in the Nasdaq 100 Index touched its highest level Tuesday since the election of President Donald Trump.
- Cobham Plc agreed to sell its wireless and aircraft-electronics divisions to Viavi Solutions Inc. for $455 million as the U.K. engineering group focuses on aerospace and defense after a run of profit warnings. The outline deal with Milpitas, California-based Viavi includes AvComm of Kansas, which monitors radio and avionics equipment, together with a British business that tests wireless- and mobile-phone networks, Cobham said Friday in a statement.
- Nokian Renkaat slides as much as 10%, the most since October 2012, after Finnish authorities began a criminal investigation into suspected insider trading. The tiremaker also proposed a lower-than-estimated dividend in conjunction with its 4Q earnings.
- Shanghai Henlius Biotech Inc., backed by Fosun Group, is planning an initial public offering that could make it one of the first to take advantage of proposed Hong Kong listing rules aimed at attracting early-stage drug developers, people familiar with the matter said. The subsidiary of Shanghai Fosun Pharmaceutical (Group) Co. is considering selling shares in Hong Kong as soon as the second half of this year, according to the people. The offering could raise at least $500 million, one of the people said, asking not to be identified because the information is private.
- President Donald Trump on Friday accused top leaders at the Federal Bureau of Investigation and Justice Department of politicizing investigations ahead of the release of a Republican memo that argues the agencies abused surveillance powers in probing Russia’s involvement in the 2016 presidential race. Trump’s accusation came after he decided to allow publication of the classified House Intelligence Committee memo, which Republicans claim describes FBI anti-Trump bias, White House officials said. He planned to send it back to Congress for release to the public by Friday, officials said.
- Overseas investors pumped $13 billion into Chinese stocks last month, the most in at least two years. Growing optimism over the nation’s currency and economic outlook fueled the inflows, with $3 billion also plowed into Hong Kong shares and $1.6 billion into the city’s bonds, the most in EPFR Global data going back to January 2016. Hong Kong’s Hang Seng Index jumped the most since April 2015 last month to hit an all-time high, while the Shanghai benchmark rallied the most in almost two years.
- A unit of HNA Group Co. is in discussions with banks to once again push back repayment of the first bridge loan it took to finance its luxury real estate development in Hong Kong, people familiar with the matter said, as the Chinese conglomerate faces pressure to repay its debts. Lenders are in talks with Hong Kong International Investment Group Co. though the firm is yet to submit a formal proposal for the loan extension, people familiar with the matter said. If HNA fails to win extension and pay back the loan, the creditors have the right to take control of the land, one of the people said. A representative at HNA’s unit couldn’t immediately comment.
- Beijing Automotive Group Co. is in talks with Magna International Inc. on a joint venture to produce battery-powered vehicles in China, according to people familiar with the matter. The discussions range from an equal partnership to cooperation in areas including manufacturing and parts supply, the people said, asking not to be identified as negotiations are private. An existing plant of Beijing Automotive would be used for production under the tie-up, the people said.
- The world’s biggest pension fund posted its sixth-straight quarterly gain, the longest run in four years, as global stocks rose to new highs while the yen weakened, boosting the value of overseas investments. Japan’s Government Pension Investment Fund returned 3.9 percent, or 6.1 trillion yen ($55 billion), in the three months ended Dec. 31, increasing assets to a record 162.7 trillion yen, it said in Tokyo on Friday. Domestic stocks made up 26 percent of its portfolio, exceeding the fund’s 25 percent target for the first time since 2014, when it overhauled its investment strategy.
- Merck & Co. joined a long line of large companies seeing a significant benefit from the U.S. tax overhaul, delivering an upbeat forecast for the year and a plan to use its gains to boost its growth. The Kenilworth, New Jersey-based company said it plans to pump $12 billion over five years into capital projects, including $8 billion in the U.S., and pay one-time bonuses to some employees. In addition, Merck provided a forecast for earnings and sales this year that exceeded Wall Street’s expectations.
*All sources from Bloomberg unless otherwise specified