Mar 18, 2016
It's a pipeline kind of day
On this day in 1972, Paul Simon released his first post-Simon & Garfunkel solo album that included “Mother and Child Reunion” lyrics, which apparently refer to a common Chinese food dish that is based on egg and chicken.
It’s a pipeline kind of day. No sooner did Paramount Resources announced the sale of its sour gas processing assets to Pembina Pipeline for $556 million, TransCanada trumped the news cycle with its $13 billion offer (including debt) for Columbia Pipeline (CPGX), and announced a $4.2098 billion bought deal at $45.75 per share (versus last night’s $49.42 close). This is our Top Line today, and will focus on the various questions surrounding the deal.
1) Why?
2) What does it mean for TRP?
3) What does it mean for Energy East?
4) Is this the start of consolidation in the space? (This morning, Pembina Pipeline also comes forward with a bought deal valued at $300 million for 8.83 million shares at $34).
Meanwhile, the markets continue to chug higher. Those who have been saying the market might have been stretched before the Fed are looking at markets even more stretched now – but it might not matter. Be careful how you approach. First, the Canadian dollar will end nine weeks of gains. This is a very rare occurrence (it appears that it has only happened once in the last few decades - i.e. in the summer of 1990 when the Canadian dollar rallied almost 4 percent over nine weeks to 88.05 cents U.S., and then proceeded to lose 3 cents in the next few weeks. In 2007, CAD rallied eight weeks in a row off of a March 2 close at 94.78, and tacked on almost 13 percent in that period to $1.07, and then fell apart in the next six weeks to a 98.31 cent low. Lots of numbers – and the circumstances were different, although the summer of 1990 saw oil soar from $15 to $40 per barrel! In 2007, oil was also on its long trek higher and took CAD with it. From CIBC today on the Canadian dollar “Beware a short squeeze.”
Second, today is quadruple witching. The volatility associated with the options/futures expiry is one thing, but portfolio managers may be in an underweight position resulting in only shallow corrections as they re-weight as prices rise.
Third, there is lots to consider – earnings outlooks have been timid, valuations aren’t exceptional, how high does oil go (given the Canadian dollar, and it seems U.S. equities also are joined at the hip with the price of oil). We’ll discuss.
Finally, you think you were offside in the currency trade following the G20, well, everyone was, and now we know why. According to a Barclays strategist, there was a secret agreement reached at that meeting that avoided a Chinese currency devaluation, put the Fed on hold, and stabilized the global economy. Everything that has happened since - whether Bank of Japan, ECB, Fed, Chinese moves - came out of that agreement. It’s a great story and good weekend reading. Does it help you pick stocks? Maybe not. But as I’ve said, if you get the currency trade right, everything else follows. It is worth paying attention to that part of the global portfolio.
I’m done. Markets are rallying. The euro is down, the pound is up, the yen is down, the Canadian dollar trades through 77 cents U.S., oil is up, and gold is down.
January retail sales in Canada rose 2.1 percent month-over-month versus the estimated 0.6 percent gain. Canada's February inflation figure rose 1.4 percent year-over-year vs the estimated 1.5 percent gain. Core inflation rose 1.9 per cent vs the estimated 2 per cent gain.
The weekend is here. BNN will try to cover it all, plus the Quebec budget, and analyze Ackman’s puts and calls trading where at one point it is estimated he was exposed to 1.1 billion (sic) shares of Valeant. If these stories were in novels, no one would believe them.
CNN’s fear/greed index ended yesterday at 78, with four extreme greed indicators and three neutral. The day begins. Watch the economic data too as the economic surprise index in the U.S. has been soaring (results better than expectations).
Every morning Business Day Host Frances Horodelski writes a "chase note" to BNN's editorial staff listing the stories and events that will be in the spotlight that day. Have it delivered to your inbox before the trading day begins (Mobile users click here: http://bit.ly/1L8f2L6).
