Commodities: WestJet Chose Delta as Partner For Lack of Route Overlap — Market Talk

1607 ET – WestJet, Canada’s No. 2 carrier, hopes US regulators will grant antitrust immunity so it can discuss fares and schedules with potential JV partner Delta Air Lines on cross-border routes, said Ed Sims, EVP of the Calgary-based discounter. The two carriers currently serve 60 trans-border routes in total and only overlap on two. American Airlines, another potential partner, has much more overlap, he said. WestJet also was drawn to Delta by its long track record of building tight joint ventures with overseas carriers, Sims said. Canada’s Parliament currently is entertaining a law that would allow such ventures to be judged not just on competition laws but on public interest considerations, he said. While WestJet assumes it will be approved, “we see nothing anti-competitive” in the proposed Delta arrangement.”

1605 ET – The Dow slides 0.2% to 24140, the S&P falls less than a point to 2629 and the Nasdaq rises 0.2% to 6776. Political uncertainty has resulted in mixed trading this week with Republicans hammering out differences in the House and Senate’s version of the tax bill, the possibility of a government shutdown looming and Trump recognizing Jerusalem as Israel’s capital disrupting the Middle East status quo. Tech shares are again the best performing S&P sector with Adobe gaining 3.6% and Facebook and Google up more than 1%. Energy shares fall sharply as oil prices plummet 2.9% to a three-week low of $55.96. The WSJ Dollar Index adds 0.2%, helped by a strong ADP jobs report. ([email protected]; @jonvuocolo)

1559 ET – Maersk looks to boost its transhipment volume in Singapore after the takeover of German container operator Hamburg Sud. Chief commercial officer Vincent Clerc told local media Hamburg Sud’s fleet may be re-flaged in Singapore and that he expects more cargo to go through the island state. Maersk’s transhipment volume through Singapore has gone up 69% over the past three years to more than 4.5 million containers. ([email protected])

1529 ET – Food retailers expect to distribute any savings reaped from a tax bill moving through Congress across investors, consumers and employees, says Amin Maredia, chief executive of Sprouts Farmers Market, a fast-growing natural grocery chain. “The intent of the tax reform is to lift all boats,” Maredia tells investors at a Barclays Capital conference. “I think Sprouts would recommend something similar to our board.” Maredia says he’s had many conversations with CEOs lately about what they intend to do with cash freed up by the tax bill if passed, and others agree it should be spread out. “CEO’s are leading and talking to their boards about being more balanced,” he says. ([email protected]; @heatherhaddon)

1528 ET – David Rosenberg, the widely read chief economist at Gluskin Sheff, says the Bank of Canada has set a “very high” bar to move off the sidelines and raise rates again. He says in note to clients it will be “long time” before BoC raises rates again, adding a number of uncertainties covering Nafta, housing, mortgage-financing rules among other things, “are simply “far too wide.” Higher interest rates “would do more to compound these uncertainties that Poloz et al are concerned about than alleviate them.” He also takes aim at economists indicating Canadian monetary policy might be too loose, saying raising rates now would trigger recession risks. He says he expects further weakness for C$, with a wait-and-see BoC and the Federal Reserve intent on raising rates. ([email protected]; @paulvieira)

1349 ET – Google scored a small victory this week when a California state judge dismissed class-action claims that the internet company pays women less than men and doesn’t give women equal opportunity for career advancement. Superior Court Judge Mary Wiss in San Francisco said the lawsuit was too broad because it was brought on behalf of all women who worked for Google in the state. Three women sued the company in September for unfair pay and promotion practices at the company. But Google’s win may be short lived. James Finberg, a lawyer for the three women, said he will file an amended complaint by Jan. 3 “that addresses the court’s concerns and makes clear that Google violates the California Equal Pay Act by paying women less than men for substantially equal work in nearly every job classification.” ([email protected])

1325 ET – Whether the Trump administration should impose tariffs on imported solar panels and cells, as the International Trade Commission is recommending, is a hot topic in the solar world. The Office of the US Trade Representative received nearly 4,000 comments ahead of a Wednesday hearing on the issue. Juergen Stein, CEO of SolarWorld Americas, one of the embattled solar manufacturers requesting protections, lobbied for tariffs saying “the President has the power to help bring the US solar manufacturing industry back from the brink.” The Solar Energy Industries Association disagrees, saying tariffs “would put tens of thousands of American workers out of jobs.” A decision from Trump is due in January. ([email protected]; @ailworth)

1308 ET – Analysts say UnitedHealth is paying at the high end for DaVita’s medical group, based on its disappointing recent results, but they argue the deal makes strategic sense and the asset is a rare one. JPMorgan says the $4.9B price is around 14 times its estimate for the medical group’s 2018 EBITDA, but the shift away from paying medical providers fees for each service “places material strategic value on integrated (and particularly capitated) medical groups” like DaVita’s. Matt Borsch at BMO Capital Markets says “the seemingly lofty multiple that UNH will pay to acquire…is distorted by the earnings improvement potential we see under UNH,” both in the medical group’s own results and the related benefits to UnitedHealth’s Medicare Advantage performance. ([email protected]; @annawmathews)

1304 ET – Bank of Nova Scotia economist Derek Holt tells clients the uncertainty over Nafta is weighing heavily on Bank of Canada policymakers, and perhaps moreso than Wednesday’s rate-policy decision is letting on. BoC remains on hold when it comes to rates, Holt says, and is more mindful of the tenuous state of Nafta talks relative to economic data. Holt says BoC is likely more focused on the risk of raising rates based on economic data, only to find out later Trump makes good on his threat to begin the Nafta withdrawal process. “There is obviously a limit to the point to which monetary policy can be put on hold by never ending uncertainties, but I simply don’t buy that the data is screaming out that this limit is being breached now,” Holt tells clients. ([email protected], @paulvieira)

1240 ET – One factor sapping US shale company profits are the extravagant prices operators have paid to lease land for drilling in places such as the Permian Basin in Texas. Many drop out those land-acquisition costs from the break-even-price calculations they tout to shareholders. While most shale operators claim they have hundreds, if not thousands, of well locations they say can muster a 10% profit margin or more, the number of in-the-money wells is far smaller when costs for land, pipelines and other infrastructure and overhead is factored in. Pioneer Natural Resources said in 2016 that its production costs at some wells were $2.25 a barrel, a level that would rival Saudi Arabia’s. It didn’t include costs for taxes, overhead and finding and developing new wells. That year, Pioneer reported $556 million in losses, spending $1.24 for every $1 it took in from operations. ([email protected]; @BradNews)

1239 ET – Shareholder letters have rolled in at US shale companies this fall, many of them demanding that operators chart a new path to delivering returns to shareholders. At Oklahoma City-based Devon Energy, Invesco, its fourth-largest shareholder at just under 5%, and others began peppering CEO David Hager with suggestions about improving returns. Hager said the driller conducted a review and determined it can probably start to pay a dividend or buyback shares by selling off billions in noncore assets and not plow all the money back into new wells. “The industry was not nearly as efficient with its capital as it should have been,” Hager said. ([email protected]; @LynnJCook)

1220 ET – US oil production has surged so quickly that it appears on course to surpass 10M barrels a day in 2018, breaking a record set in 1970. But as companies have pumped more, investors have started to pull back. About $800M flowed out of energy-focused equity funds for the year through November, compared with inflows of over $6B in 2016, according to fund-data tracker EPFR Global. Oil prices have been rising since June, but shale stock prices haven’t followed. Investors are concerned about executive pay in particular. In the last decade, CEOs at 15 of the biggest oil-and-gas companies were paid $2.8B, despite providing total shareholder returns of 2.7% a year, and saw pay exceeding 100% of their targets in 95% of pay years in that period, according to Evercore ISI. ([email protected]; @LynnJCook)

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