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Tuesday, October 17th, 2017
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S. Obata

TODAY

There are more mixed results in these non-descript markets this morning, with Europe turning in a flat morning and bond markets holding yesterday’s moves.  Loonies remain weak even though oil prices are holding up this morning.  Hovering near October lows, another penny would push the C$ to its lowest point since August as central bank expectations shift between the FOMC and the Bank of Canada.  We have hit a technical point, however, and would not be surprised to see some mild strength as a result.

FP reports that some of the change in outlook from the Bank of Canada is due to the upcoming NAFTA renegotiations.  These could weigh on the loonie, and if there are negative changes to the treaty, it will certainly affect monetary policy.
 
Initial Coin Offerings are still raking in funds.  Though not the “guaranteed winners” like they used to be, September and October proved to be big for the alternative form of raising capital.  Bloomberg reports on the over $3 billion that has been poured into more than 200 ICOs this year.  Keep in mind, that most ICOs only accept Bitcoin and Ethereum as forms of payment.  The former has ripped back to highs over the past couple of weeks, while the latter has remained relatively flat in dollar terms.
 
Based on durability, portability, intrinsic value and as a unit of account, Goldman still prefers Gold over Bitcoin as a relevant asset class in modern portfolio’s to hedge against the unknown. Bitcoin has had phenomenal performance this year, but is still largely a speculators game. (Bloomberg)

The Euro continues its recent slide amid the continued uncertainty in Spain. It’s now down for the fourth day in a row. Despite this, as shown in our Chart of the Day it still tips the list of currency performance against the Canadian dollar this year. At the bottom of the list sits the U.S. dollar which has depreciated over 6% so far this year. Goes to show you that despite all the talk since May about Canadian dollar strength, the main driver was actually U.S. dollar weakness.
 
Marijuana companies are hitting bids again, with two deals announced this week after the entire sector has rallied sharply since labour day.  The largest by market cap, Canopy Growth, has risen 46% in that time, adding over $700 million in market cap.  There may be clouds on the horizon, however.  Bloomberg reports that the Toronto Stock Exchange is considering delisting these shares as they do not comply with US Federal law.
 
Reuter’s exclusive, China is offering to buy 5 percent of Saudi Aramco directly according to sources. Chinese state-owned oil companies have proposed a deal in which they would acquire a 5% interest in Saudi Aramco through a direct investment. This could go a long way for the Chinese to secure a longer term oil supply. Apparently there are still internal disagreements between advisors on how the kingdom should proceed with the potential IPO.

Diversion: Sword Master VS Advanced Robot -The Face Off

Want to live the Rockstar life in NYC?  For only U$12M, you can buy Keith Richard’s Greenwich penthouse.
 
 

COMPANY NEWS

Johnson & Johnson beat quarterly profit expectations, driven by its pharmaceutical business and recent acquisitions. The most notable was a $30 billion acquisition of Swiss biotech Actelion which will provide access to high-price, high-margin medicines for rare diseases. Following the dispute between Bombardier and Boeing resulting in a 300% preliminary export duty by the U.S., Bombardier has announced it will be ceding a 50.01% stake in its CSeries Aircrafts to its European rival Airbus. Netflix met third quarter growth estimates, adding 5.3 million subscribers around the world. The television streaming behemoth has stated it will boost its content budget to between $7-8 billion in the upcoming year, looking to expand its production content. Goldman Sachs reported a decline in quarterly profit, attributed to a 26% drop in fixed-income trading revenue. Rivals have also faced pressures in the fixed-income trading space this quarter, with Morgan Stanley revenue falling 20%.  U.S. motorcycle maker, Harley-Davidson beat profit estimates despite the 8.1% fall in retail sales in their home country. Harley-Davidson’s struggles are expected to continue, with a 6-8% decline in shipments and a fall in net income of 40 cents per share. 
 

COMMODITIES

Oil is up 0.46% to $52.11 . Rising tensions in the Middle East are lifting prices this morning. Iraqi forces entered Kirkuk, prompting Kurdistan to briefly shut down ~350,000 bpd of production. Production resumed almost immediately; however, further escalation could lead to prolonged supply disruptions.

Gold is down -1.12% to $1,288.40 . Precious metals have been under pressure since midday yesterday. The weakness is partially attributable to the fact that John Taylor has emerged as one of the frontrunners for next Fed chair. The economist is famous for creating the Taylor Rule, a formula that is meant to determine the appropriate level of the federal funds rate. The Taylor Rule implies that nominal rates should be at least twice as high as they are now. If Mr. Taylor is appointed then we could see rates rise much faster than expected. That would not bode well for precious metals…

In other commodities news…

Gulf of Mexico Oil Spill May Be Largest Since 2010 BP Disaster” – BBG

Copper's Hot, Iron's Not in Surprise Tale of Two Commodities” - BBG

Cobalt stand-off key to future of electric vehicles” - $FT

FIXED INCOME AND ECONOMICS

The economic calendar is light today save for U.S. import prices in September rising by +0.7%. That bested the consensus for a +0.6% gain and marked the single-fastest month of rising prices being shipped into the country in over a year. Petroleum costs imported into America rose by +4.5% to lead the index, followed by a +2.4% gain in industrial supplies and a +1.8% uptick in food/beverages. Goods from Canada cost +0.5% more while those coming from China were flat. Import prices are the third of the “big 3” measures of consumer price acceleration (behind CPI and PPI) as an increasing cost of goods shipped into the U.S. generally translates to a higher price tag for the end purchaser. Note that the headline release never accounts for the cost of exports (which theoretically shouldn’t impact inflation) where shipments outside of the U.S. to the rest of the world actually rose by +0.8% and outpaced imports.
 
Bombardier Inc. debt is trading higher across the curve on the announcement that the Canadian aerospace giant has sold a majority stake in its C-Series passenger jet program to Airbus. No cash is involved in the transaction that will see Airbus acquire a 50.01% interest, Bombardier owns 31% and the Quebec government's investment agency will hold 19%. The move comes after lacklustre sales and the U.S. Commerce Department imposing harsh duties, criticizing the Montreal-based company for selling the planes locally at below cost and receiving government subsidies. All assets of Bombardier are reacting positively to the move with their equity up +13.45% in the pre-market, their one year CDS spreads narrowing in by -25 bps to +60.86 bps, and their C$ 7.35% 12/22/2026 high yield bullet bonds up a full point to $97.50 bid at time of writing.
 

CHART OF THE DAY

QUOTE OF THE DAY

You can't be afraid to fail. It's the only way you succeed - you're not gonna succeed all the time, and I know that.

- LeBron James
 


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Charts are sourced to Bloomberg unless otherwise noted.

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