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Investors hail Lyft shares in IPO, see profits down the road

Lyft’s shares soared as the company went public Friday, giving investors their first chance to bet on the future of the ride-hailing industry.

The stock opened at $87.24, up 21 per cent from its offering price of $72. It closed at $78.29, up 8.7 per cent, giving the company a $27 billion valuation.

Investors embraced Lyft despite an uninterrupted history of losses totaling nearly…Click here for full article.

March Madness

Global financial markets had a tremendous start to the year and continue to hold up well in March. Positive drivers for the markets have been the U.S. Federal Reserve’s pivot to a more accommodating stance, indications of a potential U.S.-China trade deal, corporate stock buybacks and so on. On the other hand, slowing global growth, rising recession fears, and Brexit uncertainty continue to hang on the wall of worries for investors. We will revisit these concerns below.

Given the extent of the rally from the Dec 24, 2018 lows, it would in fact be healthy for the markets to take a breather here and digest the gains year to date without reaching levels of madness. From a charting perspective for the S&P 500 (bellwether index), the area of 2800 to 2820 is of most interest and importance. This range serves as a key area of battle between buyers and sellers. Recent attempts to break above or below this range have only seen prices get pulled back into it shortly after. We could see prices consolidate and trade sideways here for a bit longer. At the same time, this area is important because a sustained break above or below this range could move the S&P 500 higher to challenge its previous all-time high at 2940 or lower to retest the 2650 level. In short, we are at an inflection point, reflecting the mix of positive and negative macroeconomic factors.

Let’s briefly revisit the key concerns and see how they have developed.

Concern #1: Slowing Global Economic Growth

  • Update: 2019 Forecasted Real GDP Growth*: U.S. = 2.4% (was 2.5%); CA = 1.5% (was 1.9%); EU = 1.2% (was 1.5%); Japan = 0.7% (was 1%); China = 6.2% (unchanged); India = 7.2% (unchanged); World = 3.4% (was 3.5%)
  • Takeaway: Forecasted economic growth has moderated for certain countries and regions, such as Canada and Europe, but the world’s two largest economies, U.S. and China, which make up about 60% of world GDP are still growing at a solid pace. Hence, our eyes should be on the U.S. and China to monitor any signs of significant slowing.

Concern #2: Fear of Global Recession

  • Update: 2019 Recession Probabilities for major economies*: U.S. = 25%; CA = 20%; EU = 20%; Japan = 40%; China = 15%; India = 0%
  • Yield curve inversion, which occurs when short-term interest rates exceed long-term interest rates, has been a reliable precursor to recessions. When the yield curve inverts, financial conditions tighten because it’s not profitable for banks to borrow money under short-term rates and lend out under long-term rates. Over time, this leads to more friction in the financial system and slower economic growth.
  • Takeaway: The recent concern surrounding recession is based on the fact that the U.S. 3-month to 10-year yield curve has inverted. This makes great news headlines. However, the U.S. 2-year to 10-year yield curve, which is more widely tracked by market practitioners, has yet to invert. Furthermore, banks don’t stop lending overnight, financial conditions tighten over time. Many years of empirical data shows that even after the U.S. 2-year to 10-year yield curve inverts, the median gain for the S&P 500 is 21% in 19 months before a recession hits.

Concern #3: Tighter Monetary Policy (central banks hiking interest rates)

  • Update: The U.S. Federal Reserve remains dovish, signalling no U.S. interest rate hikes in 2019. The same goes for Canada, Japan and the Euro Zone, where no rate hikes are expected this year. On the contrary, the market is now projecting a higher likelihood of a rate cut in all the countries and regions above for the rest of this year.
  • Takeaway: This is the least of the key concerns at the moment. Accommodative central banks are a tailwind for the markets. Slower rate hikes are favourable for businesses (lower cost of borrowing) and consumer spending (more disposable income).

Concern #4: Heightened Trade Uncertainty (U.S. vs. China trade war)

  • Update: The meeting between President Trump and President Xi has been delayed at least until April. If President Trump wants to win the next U.S. election in 2020, he is likely to release pressure on the trade conflict to maintain confidence in the U.S. economy. China has a GDP growth target of 6% to 6.5% for 2019. It needs a trade deal to help reach that growth target.
  • Takeaway: Trade uncertainty remains a pending issue, but it’s in the best interest of both sides to reach a trade deal. Hence, trade conflict is likely a transient issue when viewed through the lens of politics and game theory.

*Source: Bloomberg

Ethan Dang, CFA, MBA is a Portfolio Manager at McIver Capital Management at Canaccord Genuity.

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Statistics Canada reports trade deficit shrinks to $4.2B in January

OTTAWA – Higher oil prices helped shrink the country’s merchandise trade deficit in January from its record high set at the end of last year as exports rose for the first time since July.

Statistics Canada said Wednesday the trade deficit amounted to $4.2 billion in January compared with a record deficit of $4.8 billion for December, which was revised from its initial reading of $4.6 billion.

Economists had expected a deficit of $3.5 billion for January, according to Thomson Reuters Eikon.

Josh Nye, a senior economist at Royal Bank, said the trade report provided…Click here for full article.

SNC Lavalin ‘appalled and surprised’ as Codelco cancels $260m contract

SNC-Lavalin Group Inc. is blasting Codelco’s decision to pull the plug on a $260 million contract that was at the root of two recent profit warnings.

The embattled Canadian construction giant confirmed late Monday night that it had received official notice of the termination, saying it was “appalled and surprised” by the Chilean state-owned miner’s decision.

“We believe that this termination is unwarranted and in breach of good faith agreements reached by…Click here for full article.

The Countries with the Most Monstrous Corporate Debt

US corporate debt, excluding debt by banks – so “nonfinancial” corporate debt – has surged in recent years by all measures and to such an extent that it was featured prominently in the Fed’s Financial Stability Report, in terms of what might trigger the next financial crisis. The Fed is counting total nonfinancial business debts, which include the debts of businesses that are not incorporated. It found about $17 trillion…Click here for full article.

Shocking Stat

Two beauties are featured this week. One shocked the sports world and the other’s about the astounding increase in pipelines in the US compared to Canada.