|Globe Investor | October 5, 2015|
The close: Oil sands takeover bid helps push TSX higher
U.S. stocks jump as S&P 500 Index marks longest rally this year
Canada’s main stock index gained 1.6 per cent on Monday, with the energy sector invigorated by heavyweight Suncor Energy Inc’s hostile bid for Canadian Oil Sands Ltd, a rival and co-producer.
The Toronto Stock Exchange’s S&P/TSX composite index closed up 212.46 points, or 1.59 per cent, at 13,552.20. Of its 10 main groups, only healthcare fell. Energy stocks jumped 4.5 per cent.
Canada was among a dozen Pacific-rim that nations agreed to a historic pact hat would cut trade barriers on items ranging from cars to rice. The Trans-Pacific Partnership, more than five years in the making, is designed to boost commerce among nations that produce 40 per cent of global economic output.
Teck Resources Ltd. jumped 9.64 per cent and First Quantum Minerals Ltd. increased 18.36 percent to lead mining shares higher. Copper for December delivery increased 1.44 per cent in New York.
Canadian Oil Sands Ltd. surged a record 53.88 per cent to $9.60 after Suncor Energy Inc. made an unsolicited offer to buy the company in an all-share deal for about $4.3-billion. Under terms of the offer, Canadian Oil Sands shareholders would receive a quarter of a Suncor share, worth about $8.84 a share.
MEG Energy Corp. surged 21.81 per cent and Penn West Petroleum Ltd. rallied 22.35 percent as oil extended gains a second day after the number of rigs drilling in the U.S. slumped to a five-year low.
Potash Corp. of Saskatchewan Inc. increased 1.67 per cent after the company walked away from its €7.85-billion proposal to acquire German fertilizer producer K+S AG. Potash Corp. said significant declines in commodity and equity markets as well as a lack of engagement from K+S management led to the decision.
U.S. stocks also climbed, with the Standard & Poor’s 500 Index posting its longest winning streak this year, on speculation that the worst has been priced into shares and growth in the economy will be strong enough to support corporate profits.
Equities rallied for a fifth straight day as companies that benefit from a weaker dollar climbed. Disappointing employment data Friday pushed out expectations for an interest-rate increase by the Federal Reserve, sending the dollar lower, which helps boost American multinational companies’ profits when their overseas earnings are converted back to the U.S. currency.
Investors continued to target equities that were hardest hit during the third quarter, which was the worst for stocks since 2011. Energy companies in the S&P 500 added to their rebound from an 18-per-cent quarterly drop. Alcoa Inc. and Dow Chemical Co. gained at least 4 per cent Monday to pace a climb in raw-materials. The Dow Jones Industrial Average reached a six- week high.
“Pushing out interest rate hike expectations to next year has been critical,” said Michael Purves, chief global strategist at Weeden & Co in Greenwich, Connecticut. “Today is simply a response to oversold conditions.”
The S&P 500 rose 1.8 per cent to 1,986.92 in New York, and is up 5.6 per cent since last Monday’s close. The Russell 2000 Index gained 2.4 per cent, the most in more than a month, and is 5.3 per cent higher since ending its longest losing streak in nine years last week.
The Dow Jones industrial average rose 304.06 points, or 1.85 percent, to 16,776.43, while the Nasdaq Composite added 73.49 points, or 1.56 per cent, to 4,781.26.
General Electric was among the best performers, up 5.3 per cent to $26.82 after activist investor Nelson Peltz’s fund disclosed a $2.5- billion stake in the conglomerate.
Equities have see-sawed between gains and losses since August’s selloff, as investors wrestle with concerns about a slowing global economy and confusion over the Fed’s rate plans. The S&P 500 rallied 6.8 per cent from its August low into last month’s Fed meeting, and then fell in eight of the next nine sessions before finishing the quarter down 6.9 percent.
The odds of a Fed liftoff on rates this month have fallen to 10 per cent since the weaker payroll report, and most futures traders don’t see an increase from near zero until at least March. The chance for a January increase was priced at about 44 per cent, down from 52 per cent before the September jobs report.
Chances of a Fed rate increase aren’t the only things falling. After the S&P 500 plunged 10 per cent in four days in August for the first correction since 2011, 12 of the 21 strategists surveyed by Bloomberg cut their year-end forecasts. The average prediction has dropped 4.1 per cent to 2,142 since Aug. 10.
To get to analysts’ average estimate, the S&P 500 would have to rally more than 7.8 per cent between now and the end of the year. Such an advance during that period wouldn’t be a far cry from the average 6.4-per-cent rally that occurred over that stretch since 2009.
Attention will shift to earnings this week, as investors look for further insight on how slowing global growth is affecting U.S. companies. Alcoa unofficially kicks off the latest reporting season after the markets close on Oct. 8.
Analysts project earnings for S&P 500 members dropped 6.9 per cent in the third quarter. Still, a Fed measure of corporate income has posted its biggest quarterly increase since 2012, suggesting the overall picture for profits may be skewed by downgrades at energy producers combating weak oil prices.
Crude oil prices settled up more than 2 per cent on Monday, bolstered by a rally in U.S. gasoline and Russia’s willingness to meet other major oil producers to discuss the market.
Higher stock prices on Wall Street provided further support to oil and other dollar-denominated commodities.
Global crude benchmark Brent settled at $49.25 (U.S.) a barrel, up $1.12 or 2.3 per cent.
U.S. oil’s benchmark West Texas Intermediate (WTI) crude rose 72 cents, or 1.6 per cent, to finish at $46.26.
Gasoline surged 3 percent, helping drive up prices for both crude and other refined fuels.
“Fuel products are leading the way today though they also seem to be deriving their strength from the broader risk appetite contributed by the equities rally,” said Peter Donovan, broker at Liquidity Energy in New York.
Russia, one of the world’s top three oil producers, said it was prepared to meet OPEC and non-OPEC oil producers to discuss the market if such a gathering is called. A separate meeting between Russian and Saudi officials was being planned for the end of October, Russian Energy Minister Alexander Novak has said.
Despite those bullish signs, some analysts braced for renewed pressure on oil prices from U.S. government data this week that could show further builds in crude inventories.
With files from Bloomberg News
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