Energy giant says climate agreement will not affect valuation

Amid concerns that the Paris climate accord could have a detrimental effect on Royal Dutch Shell’s valuation, the company this week released a statement saying that they still expect to distribute all the inventories listed on their stock report regardless of any proposed production limit imposed by the pact.

CEO Ben van Beurden said in an interview with a prominent Dutch publication that the issues of standard reserves would not impact their revenues. The Paris accord has attempted to limit the amount of deposits that can be taken out of the ground due to rising carbon emissions.

“The basis of the company’s valuation is the next decade’s worth of reserve production and we don’t believe any climate outcomes are going to stop us from going ahead as planned,” said Van Beurden.

There are nearly 200 countries signed up for the Paris Climate Accord including the world’s first and second largest economies China and the U.S. plus the entire E.U. The aim of the agreement is to slowly wean the world off fossil fuels and try to limit any temperature increase to 2 degrees.

This has led to many of the world’s biggest energy companies investing billions into renewable and clean energy alternatives, and was highlighted by the acquisition of British Gas by Shell at the start of 2016.

Van Beurden also insisted that the oil market was exceptionably durable, especially after the collapse of oil prices from $120 to $30 per barrel. He said any revaluation after the climate deal would have limited consequences.

“There is no doubt that every fall in oil price costs a company like Shell billions of dollars, but they and other big players in the sector are slowly but surely transitioning to low-carbon energy alternatives,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in a phone interview for Bloomberg. “I don’t think there will be any major changes in the firm’s dividend policies.”

The benchmark level for oil if companies can turn a profit is around $45-50 per barrel, and even a small increase in demand could send prices up. Next week an OPEC meeting could see a production freeze come in that could have that exact effect. Some analysts are confident that the output cap could go global if big non-OPEC countries like Russia get onboard with the plan.

Retail sector investments are thin pickings

Is the worst of the retail dip over? Market expectations would certainly say so and shoppers are forecast to spend more than usual on their Christmas gifts this year after a particularly disappointing 2015.

However, big name retailers have still found profit growth as hard to come by as ever, which could leave investment bargains in the sector elusive.

Shares for the largest retail chains, including Macy’s and Best Buy, have soared on the expectation that a resurgent economy will loosen consumer purse strings and they will get a spectacular holiday quarter this year. Those share spikes have helped the S&P 500 to multiple record highs over the past fortnight.

The National Retail Federation has forecast a 4 percent expansion in holiday sales, helped by positive jobs data and significant wage increases. By comparison, 2015 holiday sales growth was a mere 2.9 percent.

Many analysts believe share prices already have the higher sales from the holiday season built in, with many of the stocks showing vast improvements in the past month. Best Buy in particular has seen a 25 percent gain this month alone. Kohls's shares are having their best drive in over 15 years.

“I don’t think the stock gains are going to necessarily put investors on guard and I doubt whether they will mean outperformance in the sector,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management.

“The consumer sector shouldn’t get too far ahead of itself, the shopping centres were not as full as many would expect for Black Friday. In a word, underwhelming,” Poulson continued.

According to Thomson Reuters data, which studies a selection of 20 large retailers including street stores and some online giants like Amazon, the average total return was 13 percent in 2016, while shares have soared 50 percent.

Gains in the retail industry have been fuelled by the expectation that President-elect Donald J Trump will follow through on policies that would favour a pick-up in the U.S. economy such as tax breaks, decreased regulations in the banking and healthcare sectors and a surge in infrastructure spending.

The SPDR S&P Retail exchange traded fund has been a serious outperformer since the conclusion of the race for the White House with a 13 percent gain, outpacing many other industry-tracking funds.

All this means that it’s much more difficult for investors to pick up bargains on shares, with many experts recommending companies that will benefit from the upswing in the housing market, like Home Depot.

Actelion confirm approach on buyout offer

Europe's biggest biotech firm and rare disease medication specialist Actelion has confirmed that it is in early discussions with U.S. healthcare firm Johnson & Johnson regarding a possible takeover of the company which could be worth upwards of $25 billion.

A spokeswoman for the company said there was no guarantee that any deal would go through and talks are at a “below executive” level at this time.

J&J have been on the ropes in the past year as its biggest selling product Remicade, a popular arthritis medication, faces stiff competition from a cheaper Pfizer alternative.

In response to the takeover news, Actelion stock jumped nearly 20 percent to a record high of 187.52 Swiss francs in early trading on Friday. Closing price was up 17 percent at 184.55, its best performance of the year by far.

Regulators have been getting tough on medication pricing certifications over the past few years, but those companies specializing in rare diseases have been largely exempt from scrutiny, making them a very attractive target in M&A.

Actelion's focus on lung disease puts them in that category and many analysts say that due to the industry’s appetite for businesses such as these, the final bid for the company’s shares could be as high as $250 per share.

Sales forecasts put the firm’s operating profits from their lung medication at around $5 billion in the next 4-years. Actelion's Opsumit and Uptravi medication relieve high blood pressure in the lung region which sometimes proves fatal, especially in young children.

“J&J are looking for some diversification and to boost their drug pipeline with a focus on Europe and the U.S.,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management. “We’ve just seen them purchase Abbott Laboratories' eye care business for around $4 billion and they’ve had their eye on Actelion for a while.”

One major sticking point in the deal could be Actelion’s founder and CEO Jean-Paul Clozel who has said on numerous occasions that he would like to see the company remain autonomous. Clozel holds a 4 percent stake and has previously called on shareholders to block attempts by activist investor groups to sell the firm, and since then the company’s shares have quadrupled in value.

J&J could face tough competition on the bid by Swiss rival Novartis AG, however a spokesman for the group said they have not entered the bidding process.

U.S. stocks plateau while Nasdaq reaches new peak

U.S. Federal Reserve officials sent out their clearest message yet that they would hike interest rates next month as the Dow and S&P 500 remained near their all time highs and the Nasdaq recorded its highest ever level at the end of the week.

Janet Yellen, Fed chair, mentioned last Wednesday that the central bank would change interest rates “in the not too distant future” and according to Thomson Reuters reports, traders are now pricing in an 80 percent chance of a hike before the year is out.

Some other Fed officials, like St. Louis Fed President James Bullard, have also said that the focus is now very much on the central bank’s course of action regarding rates in 2017, further enhancing the probability that they will hike rates next month.

Since republican candidate Donald Trump pulled off a surprise triumph in his bid to secure the White House, U.S. stocks have been on a whirlwind rally based on his pledges to boost fiscal spending, especially on infrastructure projects within America, and reduce corporate and private taxes.

Those factors are seen to be strong plus points for the U.S. economy, but the stellar U.S. stock performance levelled off slightly this week as investors waited for Trumps announcements in relation to his appointments to administrative posts.

“We’re advising clients to hold off at the moment and await some clarity on many of the President-elect’s policies,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in an email to investors yesterday.

“We need to be aware that this sudden spurt in growth, especially with financials, may just be a knee jerk high based on flimsy perceptions of what might happen under a Trump administration. Caution is required at this point in time.” Poulson added.

The Nasdaq hit a record high of 18,879.46 today and it closed yesterday just 3 points lower from that historic figure, while the Dow Jones Industrial average lost 23.98 points, or 0.12 percent. The S&P 500 hit a record peak this time last month and closed slightly down on that high at 2,193.80.

Iranians considering new OPEC deal, nearer to agreement

According to sources close to the Organization of the Petroleum Exporting Countries (OPEC), the cartel is getting closer to finalizing an agreement that will put a freeze on crude production for the first time in eight years, and most members are prepared to grant concessions to the only country that is holding up the deal, Iran.

Tehran has been suffering from decreased capital inflow since Western sanctions started, but the restrictions were eased at the start of this year. However, the second largest Middle-East oil producer wants an exemption from the OPEC output cap in order for the country to continue its recovery.

Some of the larger crude producing nations in OPEC, including Saudi Arabia, feels Iran is already running at full capacity and that giving only them concessions would be unfair.

Gulf sources previously reported that OPEC asked Tehran to cap its production at 3.7 million barrels per day, but the Iranians put forward a figure of between 3.9 and 4.3 million bpd. At the sidelines of a gas forum in Doha last week, OPEC eventually offered an updated figure of 3.8 million bpd but have yet to receive a reply from the Iranian energy minister Bijan Zanganeh.

The Islamic republic is currently producing around 3.9 million bpd, so the latest OPEC offer would not give the country much room for growth while restrictions are in place.

Interested parties are hoping OPEC can come to some form of agreement soon, and all eyes will be on its next official meeting in Vienna at the end of the month.

Saudi Arabia's Khalid al-Falih said the gas forum meeting went as expected but declined to comment further.

“A fast conclusion to this saga would be beneficial to the OPEC nations because they would then be able to involve some of the bigger oil producing countries who are not part of the group, like Russia,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in a phone interview for Reuters.

“The Kremlin has been very positive about supporting the output cap but their interest could dwindle if disagreements and infighting continue,” Poulson continued.

Alexander Novak, Russian Energy Minister, mentioned at last week’s meeting that many non-OPEC nations would be interested in taking pro-active measures to manage issues in the world’s oil market.

U.S. banking sector could continue to see gains under Trump

With the expectation that a Trump presidency would see lighter regulations in the banking sector and the prospect of a gentle rise in interest rates starting next month, many analysts believe the post election rally in the industry is just the start of a major upswing.

Optimism is hitting new heights as a prolonged dip in the sector may finally be coming to an end. Banks have been suffering under ultra-low rates and tougher rules after the world economic crisis of 2007-2009.

Following Trump’s shock victory, the S&P 500 bank subsector jumped 10.3 percent, posting its best figures in over seven years.

Shares for some of America’s biggest financial houses climbed over 10 percent, and investors say the increases are not even close to their ceiling yet.

“Bank shares have a long way to go before they can be considered expensive,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management. “If we see the expected hike from the Fed before the end of the year and if the Trump administration gives some indications as to how regulations are going to be altered then the current upswing in shares can most definitely go higher.”

One of the more notable regulations that Trump might change is the minimum asset threshold for so called “too big to fail” financial institutions. The level is currently set at $50 billion. If the government raised this to $300 billion, for example, it could offer a lot more flexibility to banks operating at that kind of level.

Mr. Trump is due to make announcements regarding his administration postings in the next month and the financial community will be eager to learn what kinds of personalities the President-elect will put in charge of The Treasury and the Department of Commerce.

Kevin Baker, Piper Jaffray chief analyst, said, “It’s going to be a very interesting few months as Trump takes over the reins of power. I don’t think anyone is certain how many of his pledges he will deliver on but certainly the expectation of his economic policies is having a positive effect on the markets at this moment in time.”

Trump has already made clear that he will not be forging ahead with a free trade agreement involving Pacific-rim nations.

Fed will observe and adjust rates as needed - Fischer

Fed Vice Chair Stanley Fischer said late last week that he is encouraged by the state of the American economy and if conditions continue as they are, the Fed would bring in incremental interest rate hikes but the situation needs to be constantly monitored.

10-year Treasury yields have gained slightly since the surprise election of Republican Donald Trump, even though many analysts saw his win as a negative for the economy as a whole.

“We are looking very closely at the markets and will adjust policy as needed,” said Fischer in a central banking conference in Santiago, Chile. “At this moment in time we need to be flexible and manage policy almost on the fly. Whichever way the market turns we will be ready to adapt.”

“Overall we are encouraged by the U.S. economy and we should see interest rates increase in the near future,” he added.

The central bank’s second-in-command also mentioned that they were “getting closer” to their jobs and inflation targets which made the case for tightening monetary policy even stronger. Analysts in the economic circles tend to agree.

“At the moment we can’t see anything other than a gradual continued expansion for the American economy,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management.
“If the Fed has the same view then it would be the right time to get interest rates up to normal levels slowly.”

President-elect Trump mentioned he was happy to continue fiscal stimulus and although Fischer didn’t mention what effect the incoming Republican would have for overall economic policy, he confirmed the Fed would be happy with steady stimulus for the economy as it enters a more solid growth phase.

“Should fiscal policy be expanded I don’t think anyone could argue that it wouldn’t help the economy and take some of the burden for growth. The Fed board certainly would see it as a useful addition to the current upswing,” Fischer said.

Should the Fed raise interest rates next month, as is widely expected, they are likely to keep the hike extremely gradual and the prospect of a unified Republican government could mean greater levels of cooperation between departments and less red tape in Washington, according to many experts.

The Fed is expected to make an announcement regarding policy after their monthly meeting in late December and the official minutes will be released shortly after.