November 8th, 2018

Daily Market Commentary

 

Canadian Headlines

• Canadian stocks climbed along with their U.S. peers as markets moved past the hurdle of uncertainty presented by the U.S. midterm elections. Pot stocks lifted Canadian equities higher after Michigan voted to legalize recreational marijuana and Missouri approved it for medical use. The S&P/TSX Composite Index rose 0.5 percent to the highest since Oct. 22, with pot stocks and technology shares pacing gains. Cannabis, already bolstered by wins in the midterm elections, got an added boost when anti-pot Attorney General Jeff Sessions, a major opponent of marijuana legalization, announced his resignation.
• Bombardier Inc. plans to cut about 5,000 jobs while selling its turboprop unit and a training business as Chief Executive Officer Alain Bellemare extends a far-reaching turnaround drive at Canada’s biggest aerospace company. Net proceeds from the asset sales will be about $900 million, Bombardier said in a statement Thursday. The employment reduction, Bellemare’s third since taking the reins at the debt-laden company in 2015, will yield annual savings of about $250 million by 2021 while also prompting a charge of a comparable amount next year.
• Sun Life Financial Inc.’s capital strength allows the insurer to go on the offensive and chase further takeovers at home and abroad, Chief Executive Officer Dean Connor said. “We are in a nice position — a very strong balance sheet with a very strong capital ratio,” Connor said Wednesday in a phone interview, citing Sun Life’s C$2.7 billion ($2.1 billion) in cash and low debt. “This allows us to play a strong offense and a strong defense.” Connor said he’s interested in more acquisitions in Sun Life’s focus areas of Canada, U.S. group benefits, Asia and asset management. The Toronto-based insurer is seeking transactions that bring new capabilities or allow accelerated growth, as well as acquiring larger stakes in joint ventures, similar to earlier deals in India, Vietnam and Indonesia.
• Almost two years after Exxon Mobil Corp. removed billions of barrels of oil-sands crude from its reserves, its Imperial Oil Ltd. unit is investing again, saying low Canadian crude prices that scared off the other majors make it a perfect time to build. Imperial Chief Executive Officer Rich Kruger puts the rationale for the C$2.6 billion ($2 billion) Aspen project in northern Alberta down to building when others aren’t to save money.

 

 

World Headlines

• European shares climbed at the open, following strong gains in the U.S., as earnings season reached its peak and investors awaited for the Federal Reserve meeting later in the day. The Stoxx 600 Index rose 0.4 percent, led by the travel & leisure sector. UniCredit SpA dropped 2 percent after Italy’s largest lender cut its revenue and capital forecasts, while Siemens AG rose 0.5 percent as Europe’s biggest engineering firm raised its dividend and announced plans to buy back 3 billion euros of shares.
• U.S. stocks looked set to put an end to a global rally that spread across Europe and Asia after the midterm elections. Benchmark Treasury yields retreated from the highest level since 2011. While the resignation of Attorney General Jeff Sessions has threatened to prolong U.S. political uncertainty after the elections, attention may now shift to Thursday’s Federal Reserve decision. Investors will be looking for any signals on the pace of policy tightening into 2019.
• Japan’s Topix jumped 1.7 percent and shares in Hong Kong and South Korea also posted solid gains. Italian bond yields climbed after the European Union warned the nation’s budget deficit will move dangerously close to the economic bloc’s limit of 3 percent.
• Oil gained after an eight-day losing streak in New York as OPEC was said to consider cutting output again, offsetting concerns that crude is continuing to pile up in the U.S. West Texas Intermediate futures advanced 0.9 percent, having lost 8 percent since Oct. 26. The Organization of Petroleum Exporting Countries and its allies may discuss the possibility of cutting production again next year when they meet in Abu Dhabi on Sunday. Meanwhile, government data showed U.S. stockpiles rose by 5.78 million barrels last week, compared with expectations for a 2-million-barrel gain.
• Gold investors have switched their focus to Thursday’s Federal Reserve meeting after the unsurprising results of the U.S. mid-term elections failed to nudge prices out of their current range. Fed officials are expected to keep interest rates unchanged at the penultimate gathering of 2018, with investors looking for clues about tightening next year. The strength of the U.S. dollar was one of the principle drags on the price of gold earlier in the year.
• CommScope Holding Co. agreed to buy Arris International Plc for about $7.4 billion including debt payments, creating a U.S. powerhouse in telecommunications networks. The cash purchase is set at $31.75 per share, compared with Arris’s closing price of $27.79 per share on Wednesday, Hickory, North Carolina-based CommScope said in a statement on Thursday. Additionally, Carlyle Group LP will make a $1 billion minority equity investment in CommScope to help finance the transaction.
• U.K. Prime Minister Theresa May has begun briefing her Cabinet on the text of the almost-complete Brexit deal, as her negotiators seek to finalize the last outstanding issue in Brussels. Senior ministers have been invited into a private reading room in a building adjoining May’s offices to examine the 95 percent of the withdrawal package that’s been agreed so far, according to people familiar with the matter.
• Anadarko Petroleum Corporation today announced a transaction to sell substantially all of its remaining midstream assets for $4.015 billion to Western Gas Partners, LP, with $2.0075 billion cash proceeds, and the balance to be paid in new Western Gas equity. Concurrently WES announced it has entered into a merger agreement with Western Gas Equity Partners, LP, which will result in a simplified midstream structure. The sale is expected to close in the first quarter of 2019, concurrently with the closing of the merger. The closing of the asset sale and merger is subject to the parties obtaining regulatory approvals and other customary closing conditions.
• Tesla Inc. chose Robyn Denholm to succeed Elon Musk as board chair, selecting an independent director to contend with the carmaker’s mercurial chief executive officer following his run-ins with regulators and investors. Denholm, 55, is one of two women on Tesla’s nine-member board. She will assume the chairman’s role immediately, the company said. A director since 2014, she will leave her position as chief financial officer and head of strategy at Australian phone company Telstra Corp. at the end of a six-month notice period.
• Fixed-income traders are telling the Federal Reserve that it might end up making a big policy mistake. And it’s not just rising interest rates they’re talking about. A more pressing concern has to do with the Fed’s crisis-era bond investments. Since October of last year, the central bank has been steadily reducing its holdings of Treasuries and mortgage-backed bonds. But as the unwind has picked up, unexpected knock-on effects are emerging in overnight lending markets, where demand for short-term cash has been on the rise.
• Prospects for a December government shutdown are receding after Democrats won control of the U.S. House. President Donald Trump backed away from his earlier threats of a “good shutdown” to extract concessions from Democrats who are resisting funding his proposed border wall with Mexico. While he didn’t rule out closing the government, he said at a post-election news conference on Wednesday that he thought he could reach a deal with Democrats.
• UniCredit SpA Chief Executive Officer Jean-Pierre Mustier’s turnaround plans hit a last-minute hurdle after the bank cut key targets and took a charge related to its Turkish bank. The lender surprised investors with an 850 million-euro ($972 million) charge to revalue Istanbul-based Yapi Kredi Bankasi AS and said it’s increasing funds to cover a potential settlement related to U.S. sanctions over Iran. The Milan-based bank also lowered targets for revenue and a key measure of financial strength this year and next, while keeping its 2019 profit target intact.
• Special Counsel Robert Mueller is answering to a new boss, Matthew Whitaker, who has openly criticized his Russia investigation — and has the power to constrain it or end it, just as President Donald Trump wishes. Trump never forgave Attorney General Jeff Sessions for recusing himself from overseeing the probe that Mueller now runs, and the president delivered on that long-festering frustration a day after the midterm elections were over.
• The European Union has put numbers on its frustration with Italy. After weeks of accusing Rome of too-optimistic assumptions about the effect of its spending plans, it said Thursday that economic growth next year will be weaker than the government targets, and the nation’s budget deficit will move dangerously close to the EU limit of 3 percent. Italian bonds slipped after the report, pushing the 10-year yield up five basis points to 3.39 percent. The spread over German bunds widened, though remained below recent highs.
• Sprint Corp. has been slowing traffic to Microsoft Corp.’s internet-based video chat service Skype, according to new findings from an ongoing study by Northeastern University and the University of Massachusetts. More than 100,000 consumers have used the researchers’ Wehe smartphone app to test internet connections. Information from those tests are aggregated and analyzed by the researchers to check if data speeds are being slowed, or throttled, for specific mobile services.
• Investigators are slowly piecing together clues of how Indonesia’s worst air disaster in two decades transpired, raising questions over how a near brand-new Boeing Co. jet that had recurring instrument failures was cleared for its ill-fated flight. The Lion Air Max 8 plane’s angle-of-attack sensor, which helps aircraft maintain the correct pitch to stay airborne, was replaced the day before the Oct. 29 crash after erroneous readings on a previous trip, the Indonesia National Transportation Safety Committee said Wednesday. Faulty airspeed readings plagued the jet on its last four flights before it plunged into the Java Sea with 189 people aboard.
• The owners of Middle Eastern payment processor Network International have picked six investment banks to manage a potential initial public offering that could value the firm at about $3 billion, according to people familiar with the matter. Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley were hired as global coordinators for the stock sale, which could take place next year in London, the people said, asking not to be named as the details aren’t public. Barclays Plc, Goldman Sachs Group Inc. and Emirates NBD Capital are acting as bookrunners for the listing, the people said, while Evercore is the financial adviser.

*All sources from Bloomberg unless otherwise specified