January 11th, 2018
Daily Market Commentary
- Canadian government officials said there’s an increasing likelihood U.S. President Donald Trump will give six-months’ notice to withdraw from Nafta, dragging down the loonie, yields on government bonds and Mexico’s peso. The officials, speaking Wednesday on condition they not be identified, declined to say whether they think the odds of Trump following through on repeated threats to quit the pact now exceed 50 percent. A White House official, speaking on background, said there hasn’t been any change in the president’s position on the North American Free Trade Agreement. The comments have raised worries the Nafta countries — the U.S., Canada and Mexico, who trade more than $1 trillion annually — are further apart on coming to an agreement than feared.
- European stocks are little changed amid a slew of corporate results as investors continue to assess the new year’s equity rally. The Stoxx Europe 600 Index rises less than 0.1% following Wednesday’s 0.4% drop, which snapped a five-day winning streak.
- The S&P 500 Index has started off the first six trading days of 2018 with six consecutive record closes, but it’s not unprecedented. Despite the hot start to the year, the index’s current streak marks the 23rd time the benchmark has set new highs for six straight days. Of the 22 previous streaks, only nine made it to a seventh day with the last occurring in June of 1997. The gauge has never had a stretch of ten consecutive days with record highs.
- Most equity markets retreated in the wake of MSCI AC Asia Pacific Index reaching its most overbought level in 20 years on Wednesday. Asian stocks fell from a record as a seven-day rally lost steam and profit-taking gained traction amid a jump in government bond yields. The MSCI Asia Pacific Index fell 0.4 percent to 180.18 as of 4:43 p.m. in Hong Kong, heading for its sharpest loss since Dec. 15 after paring an earlier loss of as much 0.7 percent.
- Oil traded at the highest level in three years amid the longest stretch of declines in U.S. crude stockpiles during winter in a decade. Futures in New York advanced 0.6 percent after rising 3.5 percent the previous three sessions. American inventories fell by 4.95 million barrels last week, the eighth consecutive drop, while stockpiles at Cushing, Oklahoma, the delivery point for West Texas Intermediate, extended a decline below the five-year average. Output shrank the most since October.
- Gold holds advance as equity rally stalls on muted demand for risk assets after roller-coaster ride yesterday. Gold resumed its gains after Chinese officials are said to recommend slowing or halting U.S. Treasuries purchases. Gold futures for February delivery earlier touched $1,328.60, the highest for a most-active contract since Sept. 15.
- The euro and the pound remained on the defensive while the dollar recouped part of Wednesday’s losses as short-term investors unwound China-related positions. The greenback rebounded from a six-week low against the yen as comments from China about its investment plans lifted Treasuries. U.S. producer- and consumer-price data in the next two days may prompt the dollar’s next leg, while investors will also look to the European Central Bank’s latest meeting account to assess whether hawkish policy makers are becoming more vocal.
- Companies that stockpiled trillions of dollars offshore free of U.S. income tax may get one last break before paying up — provided their fiscal years don’t follow the calendar year. A timing quirk in the tax overhaul that President Donald Trump signed last month may be good news for companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc., all of which began their fiscal years before Jan. 1. Firms including Alphabet Inc., Amgen Inc. and General Electric Co. — with fiscal years that began on Jan. 1 — appear to be shut out of the benefit. Apple alone, which disclosed an offshore cash hoard of $252 billion as of Sept. 30, may be able to lop more than $4 billion off a future tax bill.
- Markets shuddered on signs the U.S. may be preparing to withdraw from Nafta. But even if President Donald Trump serves notice of a pullout, the trade deal could survive. Under the accord, the U.S., Canada or Mexico can withdraw after giving six-months’ notice. Scant progress has been made on the thorniest issues ahead of the sixth round this month in Montreal, fueling speculation Trump will follow through on his threat to walk away. Investors are looking to any clues. Canada’s dollar and Mexico’s peso dropped and Mexican stocks retreated following reports on Wednesday that Canada sees an increasing chance the U.S. will exit Nafta. The White House later said its policy hasn’t changed.
- The European Union will spend one billion euros ($1.2 billion) to try to catch up to China, the U.S. and Japan in supercomputing, the European Commission said Thursday. But as the initiative launches, uncertainty over Brexit is creating anxiety among British computer scientists that the U.K. may miss out on opportunities from the plan. The goal of the project is for Europe to acquire two “world-class” supercomputers, capable of at least a hundred million billion calculations per second, and at least two mid-range systems, capable of tens of millions of billions of calculations per second, by 2020.
- China’s State Administration of Foreign Exchange said that a news report saying officials reviewing the country’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries might have quoted a “wrong source.” “We think the report might have cited wrong sources or may be fake news,” SAFE said in a statement posted on the administration’s website, an apparent reference to a Bloomberg News story published on Wednesday. Bloomberg cited people familiar with the discussions on China’s reserves, and reported that it wasn’t clear whether the recommendations of the officials had been adopted.
- AES Corp. is working to expand renewable energy projects in Vietnam, Jordan and Northern Ireland in a bid to reduce reliance on coal, a senior company official said. The U.S. power company plans to complete by 2023 projects worth about $3 billion in Vietnam that include building a liquefied natural gas terminal plant and a 2,250-megawatt combined cycle power plant, Olivier Marquette, head of business development for Europe and Asia, said in an interview in Sofia on Wednesday.
- Rio Tinto Group has dropped out of the bidding for a stake in Soc. Quimica & Minera de Chile SA, one of the world’s top lithium producers, as it pursues other ways to capitalize on the electric-car boom, people familiar with the matter said. Rio decided not to proceed with an offer for Nutrien Ltd.’s 32 percent stake in Santiago-based SQM after studying information in a data room, according to the people. Other strategic bidders remain interested in the holding, one of the people said, asking not to be identified because the information is private. Nutrien’s interest in SQM is worth about $5 billion at current market prices.
- Leaving the European Union without a deal in 2019 could cost Britain almost half a million jobs, a report found as London’s key finance industry vacancies also plummeted the most in three years. Failure to stitch up a deal also means Britain could see around 50 billion pounds ($68 billion) in reduced investment by 2030, according to the report commissioned from Cambridge Econometrics by London Mayor Sadiq Khan. The forecast modeled five different Brexit scenarios, from the hardest to the softest form of Brexit, and broke down the economic impact on nine industries, from construction to finance.
- Xerox Corp. surged as much as 5 percent in after-market trading following a report it’s in talks for a potential major deal with Japan’s Fujifilm Holdings Corp. Shares of Xerox climbed to as high as $31.87 in New York and subsequently pared gains to trade most recently at $30.35. Fujifilm fell as much as 2.3 percent on Thursday in Tokyo, the biggest intraday decline in two months.
- Olympus Capital Asia is pursuing a sale of its stake in iPhone recycling business Li Tong Group in a deal that could value the company at as much as $1 billion, people familiar with the matter said. Private equity firms Bain Capital and Blackstone Group LP are among bidders competing for the Apple Inc. contractor, according to the people, who asked not to be identified because the information is private. The sale has also attracted initial interest from tech-focused investment firm Silver Lake, the people said. Olympus Capital Asia and other Li Tong shareholders are still discussing the size of the stake they plan to offer, which may allow suitors to buy control of the Hong Kong-based company, the people said.
- The next step in the bitcoin revolution will take a bit longer than some anticipated. The U.S. Securities and Exchange Commission has slammed the brakes on a dozen bitcoin exchange-traded funds and two cryptocurrency mutual funds since Jan. 8, making the week a watershed for Washington pushing back on the investment craze of the moment. The regulator’s concerns include the safety of tying frequently traded ETFs to potentially illiquid assets and whether funds can be accurately valued when prices for digital coins are all over the map, said people with knowledge of the matter.
- German Chancellor Angela Merkel’s decisive second attempt to stitch together a government is up against a self-imposed Thursday deadline as she seeks to avoid new elections and begin her fourth term. More than three months after Merkel’s party bloc won an inconclusive national vote, public fatigue and pressure by business leaders to end the stalemate are increasing. To move forward, she needs a preliminary deal with the Social Democrats to start formal talks on four more years of governing together.
- Polish central bank Governor Adam Glapinski wasn’t content to extend what’s already the country’s longest pause on interest rates for another month, opting on Wednesday to defy the market’s disbelief and saying he’s open to keeping monetary policy stable into next year. After price growth eased in December to a four-month low and the zloty kept up last year’s rally, Glapinski said a period of record-low borrowing costs could last into 2019, expanding on his previous guidance that no change may be needed through the end of this year. Speaking after the decision in Warsaw, the governor said he’s “stunned” by forecasts of an increase already this year.
- Strong currencies across Asia may have raised the alarm at central banks, but analysts say they’re not likely to do much to stop the moves with economic fundamentals against them. The dollar’s decline has drawn warnings from policy makers in South Korea and Thailand about local currency strength, and may have been behind China’s move to suspend a component of its management regime seen as supporting gains in the yuan. Still, central banks are likely to content themselves with taming excessive gains in their currencies, rather than try to force a change in their course, analysts said.
- MMG Ltd., the metal producer controlled by one of China’s top trading firms, has narrowed the list of bidders for its Laos mine in a sale that could fetch about $500 million, people with knowledge of the matter said. Chinese gold miners Chifeng Jilong Gold Mining Co. and China Hanking Holdings Ltd. are among suitors invited to make second-round offers for MMG’s Sepon asset, according to the people, who asked not to be identified because the information is private. Pengxin International Mining Co., which earlier showed interest in the copper and gold mine, wasn’t chosen to proceed in the bidding, one of the people said.
- Americans probably brought the holiday spirit in abundance to retailers last month, marking a strong finish to 2017. Receipts climbed another solid 0.5 percent in December after a 0.8 percent jump a month earlier that reflected broad-based gains, according to the median projection in a Bloomberg survey of economists before Friday’s release from the Commerce Department. Compared with a year earlier, sales in November were up 5.8 percent, the most since March 2012.
*All sources from Bloomberg unless otherwise specified