Obama administration looks to crack down on tax inversions

Your top financial and economic news for Sept. 23


Top of the Morning

The Globe and Mail’s Boyd Erman writes that the recent comments made by Finance Minister Joe Oliver and Canada Mortgage and Housing Corporation President and CEO Evan Siddall are not a sign of strife between the two parties, but that doesn’t mean their relationship will always be harmonious:

This is really the result of a very different leadership style at Canada Mortgage & Housing Corp. coming up against political realities. Where once CMHC didn’t say much about anything, appearing to simply do the government’s bidding, Mr. Siddall’s style is much more open.

He wants to try out policy ideas. He is much more likely to publicly test an idea that’s earlier in its gestation than a CMHC chief ever would have considered mentioning before….

Mr. Siddall is thinking out loud about what he is advising the government on doing. And for a government that is not all that open by its nature, and which is crafting an election budget, that is going to create an interesting dynamic.

On the Homefront

TSX 60 futures are falling ahead of the open after the composite index booked back-to-back triple-digit losses.


The Canadian dollar is paring some of Monday’s losses, rising to 0.909 against the U.S. greenback.


The yield on the five-year Government of Canada bond continues to drift lower, trading around 1.66 percent this morning.


Allergan aims to make itself less attractive to Valeant. Botox maker Allergan, which is being targeted by Canadian pharma giant Valeant Pharmaceuticals (VRX) and Bill Ackman’s Pershing Square in a series of hostile takeover bids, is trying to make itself too big to buy. Management is said to have revived talks to acquire Salix Pharmaceuticals, according to Bloomberg’s David Welch. Salix has a market cap of roughly $10 billion; adding this to Allergan would likely make the combined firm too expensive for Valeant to purchase. On December 18, a special meeting of Allergan shareholders will be held, which may lead to the replacement of members of the company’s Board of Directors with people more receptive to a deal with the Canadian pharma company.


New Brunswick says no to fracking. After the dust settled following some voting machine shambles, the Liberal party came out ahead of the Progressive Conservatives int he New Brunswick provincial election. The election was, in part, a referendum on fracking, which was heartily supported by the ruling party while the Liberals favour a moratorium on this method of accessing natural gas pending further research on the risks to the environment. In 2013, New Brunswick had the lowest rate of economic growth of any province, and Statistics Canada projections that its population is likely to shrink over the next 25 years.


Canadian auto parts maker expands in India. The Canadian Press reports that auto parts giant Magna (MG) is growing its presence in India with two new manufacturing facilities that are scheduled to begin production in 2015. Magna has been one of the beneficiaries of buoyant demand for autos over the past year, with shares up more than 30 percent year to date. The stock recently took a large hit after the company revealed that it was cooperating with Brazilian authorities conducting an antitrust investigation.


What will Couche Tard buy next? Bloomberg’s Eric Lam and Frederic Tomesco write that the stellar performance Canadian convenience store chain Alimentation Couche Tard (ATD.B) has been fuelled by speculation that another major acquisition is in the offing. An analyst quoted by the outlet suggest that Couche Tard may have its eye on the European assets of Exxon Mobil or Royal Dutch Shell.

Daily Dispatches

The recent sell-off in global equities has been driven by an imminent hawkish shift from major central banks and poor data in some of the world’s largest economies, says Adrian Miller, director of fixed income strategy and GMP Securities. “With the market well versed in the investment thesis that the gap between asset prices and fundamentals has been supported by central banks’ accommodations, is it any wonder that with the Fed and BoE seeking an exit from accommodative policies as European and Chinese data suggests global fundamentals are not sufficiently improving we are seeing investors take a step back?” he writes.


A reading on the state of the Chinese manufacturing sector came in better than expected, diminishing some concerns that a hard landing for the world’s second-largest economy might be imminent. “With rumours that China is conceding defeat and will officially lower its growth target, along with speculation there won’t be further China stimulus, it was crucial for today’s reading to show some positive signs,” writes IG market strategist Stan Shamu, who notes that this better than expected figure gave equities and sentiment a lift. The Chinese property market, however, remains a source of worry, as the latest print showed new home prices falling in an overwhelming majority of cities.


Euro area business activity grew at the slowest pace of the year in September, according to the ‘flash’ reading of the Markit Purchasing Managers’ Index. A decline in the new orders sub-index for the first time since April doesn’t bode particularly well for growth going forward, nor does the fact that, despite rising to a four-month high, France’s manufacturing PMI suggests continued contraction in the sector. “The survey paints a picture of ongoing malaise in the euro zone economy,” writes Markit chief economist Chris Williamson. “For a central bank hoping that the economic data flow will start to improve, the ECB will be disappointed by the ongoing weakness of the PMI.”


A spot check on the health of the American manufacturing sector is slated to be released at 9:45am (EDT).


There’s a heavy dose of Fed-speak today, with three members of the FOMC (Bullard, George, and Kocherlakota) scheduled to deliver remarks. “[Kocherlakota] said last night that the Fed should allow inflation to rise above the 2 percent target (possibly for up to two years) to reduce unemployment faster,” writes Bank of Montreal senior economist Sal Guatieri. “He is likely one of two Fed officials who believe policy rates should remain near zero into 2016.”


The Obama administration is taking unilateral action to make corporate tax inversions – moving one’s headquarters to a more favourable tax jurisdiction – less attractive, says Business Insider’s Brett Logiurato. “The Treasury Department is attempting to limit inversions through two main methods, senior administration officials said Monday — making inversions substantially less economically rewarding, and moving to prevent inversions from going forward in the first place,” he writes. The new rules apply to all deals that have not closed by Monday and, as such, might affect Burger King’s acquisition of Tim Hortons (THI). European companies thought to be potential targets for future inversion deals have seen their stocks slump following this announcement from the Treasury Department.

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