January 25th, 2018
Daily Market Commentary
- Canadian stocks fell to the lowest in two weeks amid a widespread decline triggered by more protectionist rhetoric from the Trump administration, while the loonie rose to its highest level since September. The S&P/TSX Composite Index lost 73 points or 0.5 percent to 16,284.21. Industrial shares fell 1 percent, with Canadian National Railway Co. down 2.1 percent after 2018 earnings guidance missed expectations.
- Prime Minister Justin Trudeau is preparing for the possibility the U.S. may pull out of Nafta. For Canadian companies, the trade skirmish has already begun. Recent sanctions against planemaker Bombardier Inc. and softwood lumber producers including West Fraser Timber Co. and Canfor Corp., as well as investigations into steel, aluminum and other industries threaten to make Canada one of the U.S.’s most-penalized trading partners.
- A wave of consolidation is heating up in Canada’s burgeoning marijuana industry as companies jockey for advantages in production and branding before sales become legal by July. Bigger companies are seeking out smaller rivals to guarantee that they have ample marijuana supply and enough variety in their arsenal to be able to stock the shelves when legalization hits. Soaring stock prices also mean that potential targets could be ready to sell and take advantage of high valuations. Underscoring the trend, Aurora Cannabis Inc. on Wednesday agreed to acquire CanniMed Therapeutics Inc. in a sweetened C$1.23 billion ($1 billion) cash-and-stock deal that would be the largest yet in the country’s red-hot cannabis industry.
- European stocks are slightly weaker as investors assess mixed earnings reports and await the European Central Bank’s policy decision. The Stoxx Europe 600 Index falls 0.2%. Diageo rises after posting an increase in organic net sales that beat estimates, while Aryzta slumps the most in a year after cutting its earnings guidance. ECB President Mario Draghi will be pushed to address the strength of the euro and give more insight on exiting stimulus when he addresses reporters later Thursday.
- The dollar’s miserable week continued, with the greenback slipping against most major peers as traders digest the latest comments from White House officials. U.S. Treasury Secretary Steven Mnuchin expanded on his remarks about the dollar from a day earlier, saying he isn’t concerned about short-term fluctuations and there are economic pros and cons to where the exchange rate now is.
- Asian stocks declined following four consecutive days of gains, as Japanese equities slumped after the yen surged on comments by U.S. administration officials at the Davos World Economic Forum. The MSCI Asia Pacific Index declined 0.4 percent to 186.04 as of 4:49 p.m. in Hong Kong, with Tencent Holdings Ltd and Sony Corp. among the biggest drags. Japan stocks fell the most in seven weeks as the yen strengthened amid continuing protectionist rhetoric from the Trump administration on trade.
- Oil extended its three-year high as a record stretch of declines in U.S. crude stockpiles added to signs that global markets are burning off a chronic surplus. Futures added as much as 1.3 percent in New York after climbing 1.8 percent on Wednesday. A weaker U.S. dollar helped to underpin oil’s gain. Supplies slid to the lowest level since February 2015 and edged toward the five-year average, according to Energy Information Administration data. American producers are pumping crude at the highest rate in more than three decades.
- Gold futures settled at the highest since August 2016, as investors got behind a rally brought on by a falling dollar. Volume soared in the futures market, with trading more than double the daily average.
- The U.S. economy probably ended last year with the longest stretch of 3 percent-or-better growth since 2005. The $17 trillion question is, can it keep up this performance this late in the business cycle? Solid consumer spending, accelerating business investment and a housing rebound combined to drive fourth-quarter demand in the world’s largest economy. Gross domestic product expanded at a 3 percent annualized rate after 3.2 percent in the third quarter and 3.1 percent in the previous period, according to the Bloomberg survey median ahead of Commerce Department data due Friday.
- The eye-popping $38 billion tax bill that Apple Inc. said it plans to pay on its mammoth pile of accumulated foreign earnings will probably hit federal coffers in an eight-year trickle, not a one-time torrent. The special, cut-rate “repatriation” tax that Congress imposed on multinationals like Apple gives them as long as eight years to pay the new levy — with no interest or penalties. That drawn-out schedule puts the biggest bills off until later years, meaning Apple’s first repatriation payment would probably be much closer to $3 billion, according to tax experts.
- The trouble at General Electric Co. began decades ago when a hole started to form inside its sprawling financial unit. The hole became a $15 billion shortfall in insurance reserves, disclosed last week. It’s prompted a Securities and Exchange Commission investigation, called into question the oversight of GE leadership, pushed down the share price, and shocked investors who were asking Wednesday how this icon of American capitalism could allow the situation to deteriorate to this point.
- Sky Plc Chief Executive Officer Jeremy Darroch said the broadcaster can live without Sky News, signaling the pay-TV company is ready to do what it takes to gain approval for the acquisition by 21st Century Fox Inc. Sky is waiting for U.K. approval to be bought by Fox, which in turn plans to sell the company to Walt Disney Co. The U.K.’s Competition and Markets Authority said this week that the 11.7 billion-pound ($16.7 billion) Fox-Sky deal could only go ahead if Sky News is split off or insulated in a way that would prevent Fox Executive Chairman Rupert Murdoch gaining too much influence over British media.
- When Mario Draghi addresses reporters on Thursday, he’ll probably repeat that returning inflation to target relies on the European Central Bank’s pledge to add at least another 270 billion euros ($330 billion) in stimulus. Yet he’ll also be pushed after the January policy meeting to address the strength of the euro and to give more insight into when his institution will shift away from crisis-era measures. The euro-area economy is expanding at the fastest pace in a decade, drawing both praise from global elites gathering this week in Davos, Switzerland, as well as calls to signal that years of bond-buying and negative interest rates will soon end.
- While Saudi Arabia tries to wean its economy off crude, the nation’s flagship company is devising new ways to make money from the fuel. Saudi Aramco, the world’s biggest oil exporter, is investing in developing more efficient gasoline-powered engines and testing new methods of turning a barrel of crude directly into petrochemicals. The goal: To prolong the global demand for petroleum for decades to come by making engines and chemicals more cost-effective, even as electric vehicles and alternative sources of energy nibble away at crude’s market share.
- The U.S. warned Turkey to tread carefully in northwest Syria, as officials from both countries cautioned that the situation had grown dangerously combustible and threatened to ignite a direct showdown between their forces. Any miscalculation by Turkish forces fighting a U.S.-backed Kurdish militia in Syria could result in “grave consequences,” U.S. Homeland Security Adviser Tom Bossert told reporters Thursday at the World Economic Forum in Davos, Switzerland. Just hours earlier, President Donald Trump had warned more openly of a potential showdown between the NATO allies’ troops, and a chief aide to Turkish President Recep Tayyip Erdogan echoed that sentiment.
- The last time U.S. drillers pumped 10 million barrels of crude a day, Richard Nixon was in the White House. The first oil crisis hadn’t yet scared Americans into buying Toyotas, and fracking was an experimental technique a handful of engineers were trying, with meager success, to popularize. It was 1970, and oil sold for $1.80 a barrel. Almost five decades later, with oil hovering near $65 a barrel, daily U.S. crude output is about to hit the eight-digit mark again. It’s a significant milestone on the way to fulfilling a dream that a generation ago seemed far-fetched: By the end of the year, the U.S. may well be the world’s biggest oil producer. With that, America takes a big step toward energy independence.
- Fiat Chrysler Automobile NV posted fourth-quarter operating profit that missed analysts’ estimates on a declining U.S. car market, while affirming a 2018 earnings target that would cap a turnaround under outgoing Chief Executive Officer Sergio Marchionne. Fourth-quarter adjusted earnings before interest and taxes rose 22 percent to 1.89 billion euros ($2.35 billion), the Italian-American manufacturer said Thursday in a statement. Analysts were expecting 2.01 billion euros, according to the average of estimates compiled by Bloomberg.
- Apple Inc. is ready to take on Amazon.com Inc. in the digital book market again, years after regulators forced the iPhone maker to back down from an earlier effort to challenge the e-commerce giant’s lead. Apple is working on a redesigned version of its iBooks e-book reading application for iPhones and iPads and has hired an executive from Amazon to help.
- Twitter Inc. is working on a new Snapchat-style feature that makes it easier to post videos on the social-media company’s app, according to people familiar with the matter, aiming to attract more users and cement a nascent turnaround. The San Francisco-based company has a working demo of the camera-centered product, according to people who have seen it, but the design hasn’t been finalized, nor has the timing of its debut. The tool could change significantly over the next several months, they said, asking not to be identified because the product hasn’t been publicly disclosed. The goal of the new feature is to entice people to share video clips of what’s happening around them. Twitter declined to comment.
- Opponents of the new corporate tax cuts were right. Many companies didn’t pay the full rate before the law passed — so they won’t see splashy reductions in 2018, according to their own estimates. The law signed Dec. 22 by President Donald Trump lowered corporate taxes 14 percentage points, to 21 percent from 35 percent. The 24 S&P 500 companies that have shared 2018 guidance with investors are projecting an average savings of 5 percentage points.
- Siemens AG is planning the sale of its mechanical drive unit Flender GmbH this year as part of Chief Executive Officer Joe Kaeser’s efforts to streamline Europe’s biggest engineering company, according to people familiar with the matter. The Bocholt, Germany-based business has attracted interest from potential acquirers including some Chinese companies and buyout firms, said the people, who asked not to be identified because the information is private. Flender could fetch more than 1 billion euros ($1.2 billion), one of the people said. A formal sales process could start later this year, they said.
- A management consortium backed by TPG Capital has bid for a fiber telecommunications network controlled by India’s Tata Group, people with knowledge of the matter said. The suitors offered at least $1 billion for the fiber assets and related businesses owned by the Indian conglomerate’s Tata Teleservices Ltd. unit, according to the people, who asked not to be identified because the information is private. The consortium is led by Mukund Rajan, the head of international operations for Tata Group’s holding company, they said.
- Money managers in the Middle East are confident the sale of government-owned Saudi Arabian Oil Co. this year will shake up the global stock market with a record initial public offering that gives the world’s biggest company a valuation of about $1.5 trillion.
- U.S. college endowments gained 12.2 percent on average in fiscal 2017, the best performance in three years, according to an industry survey. The performance for the year ended June 30 marks a turnaround from a year earlier, when the average endowment incurred a loss, according to the survey released Thursday by National Association of College and University Business Officers and money manager Commonfund. The S&P 500 Index returned 18 percent in fiscal 2017, outpacing the 1.6 percent gain for the Wilshire Bond Index.
*All sources from Bloomberg unless otherwise specified