Oil rebounds on surprise API inventory decline, railroad merger news, traders await FOMC minutes
It had been pretty quiet overnight for the most part across equity and currency markets, but stocks have started to move up again over the last couple of hours. It appears the November correction of the October rally has run its course but with the outcome of next month’s FOMC meeting still uncertain and news flow slowing down with earnings season wrapping up, traders appear to be waiting for new information to latch on to. This morning’s Fed speakers and this afternoon’s FOMC minutes could indicate how close a call the October decision was and how strong a signal we should take from the statement on December, which may kick off another round of interest rate liftoff speculation trading.
Yesterday afternoon saw more potential merger news with Canadian Pacific looking to purchase US railroad Norfolk Southern, and France’s Air Liquide agreeing to purchase Airgas of the US. CP announced more details of their offer this morning, it will be interesting to see if the street likes the offer. Historically, target companies tend to rally on takeover bids while bidders tend to see their stock drop as the risks of overpaying and integration rise. With the potential for a bidding war or another attempt at railroad sector mergers (which have fallen apart in the past in the face of regulatory opposition) the entire railroad sector could attract attention from traders today.
There are two significant things to consider about these potential mergers and the big brewery deals announced last week. On one hand, it seems that growth prospects in mature industries have slowed to the point that many companies are finding the only growth avenue left is to gobble up their competitors. On the other hand, the fact that many of the buyers in recent mega transactions are strategic (other companies) rather than financial (hedge funds and private equity) means that many management teams are still seeing value out there.
Yesterday’s bomb scares and today’s arrests in France don't appear to be having a big impact on trading with the gold price and USD holding steady indicating no flight into or away from safety at the moment.
Crude oil has been bouncing back today after API inventories turned back downward easing some of the recent fears of a supply glut. Oil could be active through the day with traders looking to the mid-morning DOE report for confirmation of rejection of the improvement. Oil action along with a number of earnings and guidance announcements from majors like Suncor, Teck and Loblaw could spark a number of significant moves in Canadian stocks today.
Canadian Pacific has sent a merger proposal to Norfolk Southern offering $46.72 in cash and 0.348 of its shares for each Norfolk share, a 23% premium to its 45-day average.
Suncor Energy 2106 Capex guidance $5.7-7.3B above street $5.1B, production guidance 525-565 mbbl/d below street 592 mbbl/d
Teck Resources laying off 1,000 staff, cutting 2016 expenditures by $650M, cuts dividend to $0.05
Loblaw $0.99 vs street $0.97
Metro Inc $0.52 vs street $0.51
Lowes $0.80 vs street $0.78
Significant announcements released overnight include:
US API crude oil inventories (0.48) mmbls vs street 0.67 mmbbls
China new house prices 3.2% vs previous 1.9%
Australia wage price index 2.3% as expected
Switzerland ZEW expectations 0 vs previous 18
Upcoming significant announcements include:
1:00 pm GMT Poland employment street 1.0%
1:00 pm GMT Poland wages street 3.6%
8:00 am EST FOMC Dudley, Lockhart and Mester speaking on panel
8:30 am EST US housing starts street 1,160K
8:30 am EST US building permits street 1,147K
10:30 am EST US DOE crude oil inventories street 2.0 mmbbls
10:30 am EST US DOE gasoline inventories street (1.5 mmbbls)
10:30 am EST US DOE implied oil demand previous 15,959 mmbbls
2:00 pm EST US FOMC minutes
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