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WEEKLY UPDATE – STOCKS PULL BACK FROM RECORDS AS MARKETS LOOK TO US FEDERAL RESERVE
The Market View:
North American equities put together a slight late-week rally to mitigate losses on the week, with falling metal and oil prices creating market drag. U.S. stocks snapped multi-week winning streaks and Canadian…
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A Few Things to Consider:
The Russell 2000 Small Cap Index (RUT) gave up points for the third consecutive week, losing 2.07% (-28.86 points). That marks the first three-week skid since …
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Thoughts for the Week: A Rate Hike's Not All Bad:
There have been some people that have worried about a market temper tantrum over the Federal Reserve normalizing interest rates. In fairness, there's no doubt that the market can act like a spoiled child, but…
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Forex & Commodity Snapshot:
The Canadian Dollar narrowly lost a lot of ground again against its US counterpart, depreciating last week by 0.65% to US$0.7427351.
April Gold futures were the most actively traded, slumping $25.10 per ounce, or 2.05%, to $1,201.40.
May Silver futures were the most actively traded, dropping $0.817 per ounce, or 4.61%, to $16.923.
May Copper futures were the most actively traded, falling $0.1015 per pound, or 3.76%, to $2.595.
April West Texas Intermediate Crude futures were the most actively traded, diving $4.84 per barrel, or 9.08%, to $48.49.
Equity Market Snapshot: (All percentages on a weekly basis unless otherwise noted)
Canadian Natural Resources (TSX:CNQ, +3.76%) agreed pay $7.2 billion to acquire a number of assets from Royal Dutch Shell (NYSE:RDS.A, -1.37%). Shell is selling its entire 60% interest in the Athabasca oil sands project, the complete Peace River project and Carmon Creek project, as well as other undeveloped leases in the same region. Separately, Canadian Natural and Shell will acquire Marathon Oil Canada Corp, which holds a 20% interest in the Athabasca project, meaning that Shell will still have a 10% stake. CNQ is paying $1.3 billion for its portion of Marathon Oil Canada. $5.4 billion of aggregate costs to Canadian Natural will be paid in cash, the rest through the issuance of about 98 million new shares. For Shell, it just wanted out of the oil sands and work towards slashing $30 billion of roughly $92 billion in debt as it promised after acquiring BG Group last year. The sale gets them nearly two-thirds of the way to that goal.
Sterling Bancorp (NYSE:STL, -1.79%) agreed to acquire Astoria Financial (NYSE:AF, +13.75%) in an all-stock deal valuing Astoria at approximately $2.2 billion, creating a leading regional bank serving the New York City metro area. Per the deal, Astoria shareholders will receive 0.875 of a STL share for each share of AF owned, equating to Sterling paying an 18.6% premium, or $21.92 per share, based upon the value of shares the day before the deal was announced. When the transaction is complete, current Sterling shareholders will own about 60% of the merged company that is expected to see $100 million in synergies and a 9% increase in earnings in 2018 and 16% in 2019.
Shares of TG Therapeutics (NASDAQ:TGTX, +113.08%) went ballistic after a phase 3 trial evaluating TG's experimental drug ublituximab in combination with AbbVie's (NYSE:ABBV, +4.01%) FDA-approved Imbruvica was superior to Imbruvica alone in adult patients with high-risk chronic lymphocytic leukemia that were unresponsive to at least one prior therapy. Data showed the trial hit its primary endpoint of an improvement in overall response rate of at least 70% compared to Imbruvica alone. TG says it plans to leverage the data to seek an accelerated approval from the FDA.
France-based PSA Group agreed to pay $2.3 billion to buy Opel from General Motors (NYSE:GM). PSA Group, the maker of Peugeot and Citroen vehicles, vows to return Opel to profitability after 16 straight years of losses. The acquisition of Opel bumps PSA Group up to the second largest carmaker in Europe by sales, trailing only Renault. Divesting Open is the final piece in GM's exit from Europe.
Two of the biggest players in artificial intelligence, International Business Machines (NYSE:IBM, -1.23%) and Salesforce.com (NYSE:CRM, -2.68%) have teamed up to cross-market their AI products. With the pact, IBM's Watson and Salesforce's Einstein will be made directly available to customers, meaning that Watson's massive data base of structured and unstructured data can be pedaled alongside Einstein's customer relations data. The pact, which at first blush is between two odd bedfellows, but a closer look shows very little overlap in AI vision, also includes an agreement that opens the door to Salesforce customers for IBM to offer its consulting services.
Former Canadian Pacific Railway (TSX:CP, +0.13) leader – and perhaps the biggest name in the railroad business for turning around three different railroads, including CP and Canadian National Railway (TSX:CNR, +1.57%) – Hunter Harrison has agreed to take a the position of CEO and director at CSX Corp. (NASDAQ:CSX, -3.40%), as CSX finally succumbs to pressures from activist investor Mantle Ridge. CSX is also adding Mantle Ridge founder Paul Hilal and three new directors to its board, bringing the total number of directors to 13. As part of the deal to come aboard, Harrison wants the $84 million in compensation and benefits that he is forfeiting from his separation from CP. If shareholders don't approve the payment at the 2017 annual meeting, Harrison says he will resign immediately.
As part of an internal review, Dicks Sporting Goods (NYSE:DKS, -6.36%) said it is dumping 20% of its vendors in order to focus more on its own brands, taking a $46 million write-down in the process. Dicks didn't say which vendors, but did say it has nothing to do with a reduction in business and that the move would not affect their top ten brands. The brand reduction was generally met positively, however, the company forecasting a weaker Q1 that Wall Street expected, was not. Dicks expects earnings in the range of 48-53 cents per share for this quarter, below the consensus estimate for 61 cents per share.
Swedish authorities arrested a 37-year old Russian employee of Bombardier (TSX:BBD.B, -14.88%) on suspicion of bribing Azerbaijani officials in a 2013 railway contract. Other Bombardier employees are also suspected to have been involved in the deal, which saw Bombardier be awarded the contract in spite of being fifth highest in its bid. Before the contract was granted, the four lower-bidding companies were disqualified by the Azerbaijan rail authority.
Netherland's Akzo Nobel N.V., the biggest coatings company in Europe, rejected an unsolicited takeover offer from PPG Industries (NYSE:PPG, +0.03%), saying the $22.1 billion takeover bid substantially undervalues the company. PPG said it is evaluating the situation after what is considered an attractive proposition. PPG's offer was 29% above Akzo's value the day before the bid for the specialty chemicals company became public.
Weekly Indices Results:
The S&P TSX Composite Index fell for the second time in three weeks, skidding 101.82 points, or 0.65%, to 15,506.68. The TSX-Venture Composite dropped for the third straight week, doffing-off another 19.27 points, or 2.35%, to 799.19.
In the States, the Dow Jones Industrial Average broke back under 21,000 and halted a four-week wining streak, giving back 102.73 points, or 0.49%, on the week to 20,902.98. The much-broader S&P 500 ended a six-week winning steak and fell back under 2,400 after topping it for the first time in its history the week prior, ending the week down 10.52 points, or 0.44%, at 2,372.60. The tech-rich NASDAQ Composite decline for the first time in seven weeks too, slipping 9.03 points, or 0.15%, to 5,861.73.
Canadian Economic Data: (All data in Canadian dollars and from Statistics Canada unless otherwise noted)
Canada's merchandise trade balance with the world posted a third consecutive monthly surplus, widening from $447 million in December to $807 million in January. Economists expected a trade surplus of $700 million. Exports were up 0.5% to a record $46.5 billion on the strength of higher exports of motor vehicles and parts (+7.7% to $7.8 billion) and canola (+38.4% to a record high of $845 million). Imports edged down 0.3% in January to $45.6 billion, mainly due to lower imports of unwrought gold, although 7 of 11 sections posted declines. Exports to the United States rose 2.3% to $34.6 billion in January, led by higher exports of passenger cars and light trucks. Imports from the United States edged up 0.3% to $30.1 billion. As a result, Canada's trade surplus with the United States widened from $3.8 billion in December to $4.5 billion in January. Exports to countries other than the United States fell 4.4% to $11.8 billion in January. Lower exports to Switzerland (-$298 million) and Spain (-$200 million)—both due to fewer aircraft exports—contributed to the decline. Imports from countries other than the United States decreased 1.3% to $15.5 billion in January. Imports from Japan fell $273 million on lower imports of passenger cars and light trucks. As a result, Canada's trade deficit with countries other than the United States widened from $3.4 billion in December to $3.7 billion in January.
The housing industry stayed hot in February, according to the latest report from Canada Mortgage and Housing Corp. Housing starts rose to a seasonally adjusted annual pace of 210,207 units last month from 208,934 in January. Economists expected an annual rate of 200,000 homes. A jump of 12.1% in single-family units (to 71,871 units), the smaller component in the Canadian market, offset a 4.7% decline (to 121,164 units) in the multi-family unit, which includes condominiums. The SAAR of urban starts increased by 0.9% in February to 193,035 units. Rural starts were estimated at a seasonally adjusted annual rate of 17,172 units. CMHC particularly noted the market in the populous province of Ontario, where groundbreaking on new single-family homes, which are generally the most expensive segment, are "reaching levels not seen since July 2008."
The value of building permits issued by Canadian municipalities rose 5.4% to $7.6 billion in January. The jump didn't catch economist off guard; on a consensus basis, they called for an increase of 5.0%. This followed two consecutive monthly decreases and suggests that the housing boom will continue at least a little while longer. Six provinces posted increases, led by Alberta and British Columbia. Nationally, construction intentions rose in every component, particularly institutional buildings. Construction intentions in the non-residential sector rose 11.2% to $2.5 billion in January, following a 10.3% decline in December. The value of building permits issued for institutional structures rose 19.0% to $732 million in January, the second increase in six months. In January, the commercial component was up 6.8% to $1.4 billion, following two consecutive monthly declines. The industrial component increased 14.1% in January to $422 million, the result of higher construction intentions in five provinces, particularly Ontario. In the residential sector, municipalities issued $5.1 billion worth of building permits in January, a 2.7% increase from the previous month.
Prices for new homes nosed up 0.1% in January, matching the month-over-month in December. Compared to January 2016, prices were up 3.1%. Prices were up in 14 or 27 cities covered, down in 7 and unchanged in 6. The Kitchener, Cambridge and Waterloo area posted the largest gain, as Ontario was mostly responsible for the national advance from December. Prices in the area of St. Catharines/Niagara jumped 0.9%, as did prices in London. The populous city of Toronto was the most influential contributor, were prices climbed 0.2%. Vancouver, which implemented taxes on foreigners late in 2016 to try and slow the red hot market, had prices drop 0.1%. Toronto was also the top contributor to prices rising year-over-year, as prices for a new house rose 8.0% in the past year. StatCan's New Housing Price Index only includes prices on new houses, meaning apartments and condos, which account for about 2/3 of housing market, aren't part of the equation.
The country added 15,300 jobs during February, blowing away economist expectations for a gain of only 2,500. Importantly, the jump in jobs was underpinned by full-time hiring. As 89,800 part-time jobs went away last month, 105,100 new full-time hires were reported. Jobs figures can be volatile and open to sharp revisions, but if February's figures hold true, that will be the biggest one-month surge in full-time jobs in over a decade and the sharpest cutting of part-time jobs since StatCan started keeping track in 1976. The unemployment rate, which economists predicted would be flat for the month, dropped from 6.8% in January to 6.6% in February, matching the lowest level since October 2008, a time when the financial fallout was just beginning. The labour force participation rate edged down from 65.9% to 65.8%. The biggest gain in new jobs came from the services sector (+19,100) and in public administration (+11,900). By percentage, Newfoundland and Labrador posted the largest advance (+14.2%), followed by Prince Edward Island (+10.%) and Nova Scotia (+8.1%). British Columbia increased by 5.1% and Ontario was up 6.2%.
This week, major economic reports include International Transactions in Securities and CREAstats/MLS Sales on Thursday; and the Monthly Survey of Manufacturing on Friday.
U.S. Economic Data:
The Commerce Department reported that the trade deficit mushroomed to almost a five-year high in January, rising 9.6% to $48.5 billion from a revised $44.3 billion in December. Economists saw it coming, calling for an even bigger shortfall of $48.8 billion. The deficit was largely attributable the U.S. importing more automobiles and parts (which hit a record high), consumer goods and paying higher prices to import oil. Overall, imports rose 2.3% to $240.6 billion. Exports grew at a smaller 0.6% to $192.1 billion, the highest since December 2014, as higher exports of cars and trucks, soybeans and oil offset decreases in other categories. A wide trade gap subtracts points from GDP, suggesting the economy could face some challenges to start the new year.
According to the Labor Department, the U.S. created 235,000 new jobs during February, exceeded economist expectations for 203,000 new jobs. At the same time, the unemployment rate dipped to 4.7% from 4.8% in January, in line with expectations. The labor force participation rate came in at 63.0%. Further, January's job additions were revised up to 238,000 from 227,000. Average hourly pay rose 0.2% from December to $26.09. Average pay was up 2.8% from February 2016, a strong figure and up from 2.6% in December, but below the 3.5% long-run average. Average hours worked per week in February was flat from December at 34.4. Probably due to unseasonably warm weather nationwide last month, 58,000 new construction jobs were create in February, the biggest one-month jump in nearly a decade. To start 2017, the nation has added an average of 236,500 new jobs. That's up 100,000 total new jobs compared to the two-month start to 2016.
The Labor Department said that initial claims for state unemployment benefits, a proxy for weekly layoffs, shot back up by 20,000 to a seasonally adjusted 243,000 during the week ended March 4, pulling the number of new applications off a nearly 44-year low. Economists expected a smaller uptick to 238,000 claims for the week. The latest report marked the 105th straight that claims have been under 300,000, a level consistent with a healthy jobs market. That's the longest streak since 1970, a time when the labor market was much smaller. The four-week moving average of claims, considered by most as a better gage of labor trends as it flattens week-to-week volatility, moved up by 2,250 to 236,500 last week, hovering near the lowest mark since April 1973.
This week, major economic data in the States will include PPI-FD on Tuesday; Consumer Price Index, Retail Sales and FOMC Meeting Announcement on Wednesday; Housing Starts, Philly Fed Index and Initial Jobless Claims on Thursday; and Industrial Production on Friday.
Lexaria Bioscience Corp. (OTCQB:LXRP) (CSE:LXX) announced that it has entered into an agreement with Eight Capital as lead agent, on behalf of a syndicate of agents including Haywood Securities Inc. and Echelon Wealth Partners, pursuant to which the agents have agreed to offer for sale, on a "best efforts" private placement basis, units of the Company at a price per unit of US$0.42 for total gross proceeds of up to US$2,500,000. Subject to the receipt of all required regulatory approvals, each Unit shall consist of one common share of the Company and one-half of one share purchase warrant. Each Warrant shall entitle the holder to acquire one Share at a price of US$0.60 per Share for a period of 24 months following the closing of the Offering. Lexaria has also authorized offering an addition 20% of units, meaning the raise could be increased by up to US$500,000 at any time prior to two days before the closing of the offering, expected about March 28.. Net proceeds from the raise will fund Lexaria's research collaboration with with National Research Council Canada; other Lexaria-developed R&D related to the delivery and bioavailability of cannabis, vitamins, NSAIDs and nicotine; and working capital and general corporate purposes.
Forward Looking Statements
This report includes forward-looking statements that reflect the mentioned companies current expectations about its future results, performance, prospects and opportunities. the mentioned companies has tried to identify these forward-looking statements by using words and phrases such as "may," "will," "expects," "anticipates," "believes," "intends," "estimates," "plan," "should," "typical," "preliminary," "we are confident" or similar expressions. These forward-looking statements are based on information currently available and are subject to a number of risks, uncertainties and other factors that could cause the mentioned companies actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, without limitation, the Company's growth expectations and ongoing funding requirements, and specifically, the Company's growth prospects with scalable customers, and those outlined above. Other risks include the Company's limited operating history, the Company's history of operating losses, consumers' acceptance, the Company's use of licensed technologies, risk of increased competition, the potential need for additional financing, the terms and conditions of any financing that is consummated, the limited trading market for the Company's securities, the possible volatility of the Company's stock price, the concentration of ownership, and the potential fluctuation in the Company's operating results.
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