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Tuesday April 25th, 2017
Contributors: J.Price, C.Basinger, D.Benedet, C.Kerlow, D.Mak, S. Obata


Markets Overview

The buying continued overnight with gains through Austral-Asia spreading into the morning session in Europe.  They are muted after yesterday’s big bang though.  France’s CAC moved up 4.14% on the session, the best day since August 2012 and among only 25 days in the past decade to move over 4%.

As an interesting aside, it’s been a while since a good bear market, but we have noted in the past that the biggest up days come amid broader bear markets, and in researching the above data point noticed that 6 of the CAC’s top 10 days came in 2008 (after which there was at least a 15% decline to the bottom.  The 7th came on the day of the bottoming March 10, 2009.

In early trading, futures here are pointing to a stronger open as well, with the S&P having vaulted back above its 50 day moving average yesterday, we suspect it has the March 1 highs of 2400 in its sights.
Some ETFs are launched with a bit of a whimper based on initial volumes. If successful, volumes and usage increases over time and the manufacturer/manager are happy.  Sometimes volumes don’t rise. The number of ETFs now traded on Canadian exchanges is just under 500.  We excluded those not reporting assets on Bloomberg.  #1 is XIU that tracks the TSX 60 and has over $9 billion in assets.  The top ETFs are dominated by iShares and BMO with the top 15 ETFs all over $1 billion in assets.  In fact all 15 are either BMO or iShares.  At the other end there are over 200 ETFs with less than $100m in assets.  Some are growing though, perhaps the quickest being Horizons Medical Marijuana ETF that has gone from zero to $124m in assets in less than a month. 
Beware the Narratives
“More buyers than sellers.”  Sure, there are lots of market narratives to describe current activity.  That is the simplest (and dumbest sounding).  Cullen Roche points out, however, that the smartest sounding market narratives can also be the most dangerous.  Sometimes. “…reading too much about the financial markets can create behavioral risk.
Because we are fascinated by demography (possibly too much) articles like this one from Bill McBride are like candy.  Especially the point, that we have made before, that the US millennials are now the biggest demo ever.  As McBride points out, this is great for housing and the economy in general.  Step aside, boomers.

We aren’t sold on the cheesy info-mercial, but Star Wars hoverbikes are coming to the yuppy-set

Bowler Ben Ketola sets world record with fastest 300 game –


Tyson Foods, the largest meat distributor in the U.S. is buying AdvancePierre Food Holdings for $3.2bb expanding their offering of prepackaged foods. Tyson is looking to sell three non-meat based businesses, likely to fund the deal. Those being Sara Lee, Kettle and Van’s. Coca-Cola is accelerating their efforts to transform he company, they will pushing through $800mm in cost savings this year, which is part of the effort to cut costs by $3bb overall. This comes as Muhtar Kent steps aside to make way for incoming CEO James Quincey. Despite months of delays, Rite Aid says they are still in discussions with the FTC regarding their $7bb takeover of Walgreens. There is growing speculation that the deal could fall apart because of anti-competition concerns. 

LVMH is offering to buy out minority investors in Christian Dior for €260 per share, which is 15% higher than the closing price on Monday. The move will consolidate Bernault Arnault’s control over Christian Dior, which he already controls with a 74% ownership stake. The deal, which is valued at €12.1 billion, will reunite Dior Couture and Dior Parfums.


Oil is down 0.51% to $48.95. Prices have been on a roller coaster since the OPEC deal in late November. Oil rose to ~$58 immediately following the deal and then traded between $51 and $56 for the better part of three months. Prices rolled over in early March, stabilized in mid-March and then rallied back to ~$54 before rolling over again. Oil is now trading near the lower end of its post-agreement range as investors question the effectiveness of the output deal. Despite high levels of compliance with production cuts, global crude shipments have risen by >4 million barrels per day since December. “The picture that emerges shows there is a big difference between reducing output and actually cutting supplies.”

Gold is down 0.65% to $1269.25. Prices have fallen to two week lows as the safety trade unwinds. Regrettably, bulls raised their bets ahead of the French election results. Funds boosted their net-long positions in futures & options to the highest levels since November in the week ended April 18th. Moreover, investors have been piling into the GLD ETF, which saw a massive $487 million inflow last Wednesday.

In other commodities news…

Republican Cracks Emerge in Trump's Coal-Heavy Energy Plan” – BBG

Iraq begins final expansion phase at Halfaya oil field aiming to double output” – RTS

Russia indicates it can lift oil output if deal on curbs lapses” – RTS


Yields are higher across the curve to start the day again today, adding to yesterday’s move in the aftermath of the French election.  Essentially markets are breathing a sigh of relief that it seems unlikely a euro-skeptic will be the next French president, although there remains uncertainty over the makeup of government in the upcoming elections.   The move overnight appears to have been driven by President Trump signalling he was willing to delay the border wall, a move that may enable US Congress to pass a continuation bill to avoid a government shutdown, though Trump’s intention to cut corporate taxes without any offsetting revenue or spending cuts remains topical.  That being said, Commerce Secretary Wilbur Ross announced a plan in impose a 20% tariff on softwood lumber. This affects $5 billion of Canadian exports and would generate $1 billion in revenue. President Trump also signalled he would move to protect US dairy farmers, which could lead to further trade conflicts with Canada, and the Canadian dollar has sold off in response. We would point out however that total exports to the US from Canada are close to $550 billion, so the move against lumber less than 1% of total southbound trade.
Looking ahead, data today includes US house prices, New Home Sales, Conference Board Consumer Confidence, and the Richmond Fed Manufacturing Index. These are relatively minor indicators, ahead of the key GDP releases on Friday, and the European Central Bank meeting on Thursday.



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