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Take Five: May Day, May Day! World markets themes for the week ahead

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(Reuters) – Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 8, 2019. REUTERS/Brendan McDermid/File Photo

1/BREXIT MAY DAY

With less than 80 days to go until Britain leaves the European Union, the path to Brexit winds to a critical crossroads on Tuesday when lawmakers vote on Prime Minister Theresa May’s withdrawal deal. The agreement, which May and EU leaders say cannot be renegotiated and is the only one available, will almost certainly be rejected. If so, uncertainty, paralysis and the likelihood of a disorderly ‘no deal’ Brexit will rise.

Volatility is nothing new to sterling, Friday being a microcosm of how the FX market is playing Brexit. A media report that Britain’s departure could be delayed sent the pound shooting up nearly a cent to its highest since Nov. 29, then minutes later May’s spokeswoman ruled out any delay and the pound fell right back again. One-month implied options volatility in sterling is much higher than euro vol, and that’s unlikely to change any time soon. All eyes on the big vote in Parliament on Tuesday and for sterling, moves below $1.25 or above $1.30 are both on the table.

(GRAPHIC: Sterling volatility – tmsnrt.rs/2SN1jm3)

2/PRICE PRESSURE

The Fed reckons the world’s biggest economy is continuing to motor ahead but markets seem to think otherwise, their fears for the growth outlook knocking equity prices off record highs. More recently though they have cheered Fed Chairman Jerome Powell’s comment that the U.S. central bank can be patient in approving any further rate increases. Powell said that “especially with inflation low and under control”, the Fed can “be patient and watch patiently” to figure out which of the two competing narratives unfolds in 2019.

So whose view is correct? It’s true labour markets are robust and wage inflation has been on the rise — average earnings rose in December by 3.2 percent on an annual basis, matching October’s rise which was a 9-1/2-year high. But workers’ wage gains are also being eroded by inflation, with core CPI seen above the Fed’s 2 percent target in coming months. Powell’s newly dovish-sounding rhetoric has prompted money markets to price out Fed rate rises in 2019 but the producer price index due Jan 15 could be key. If it shows inflationary pressures cooling, there could be a further reprieve from markets’ rate-hike concerns.

(GRAPHIC: Can Powell’s Fed afford to be “patient”? tmsnrt.rs/2H6xfAE)

3/EARN, BABY, EARN

Global stock markets have suffered in recent weeks on fears that economic growth — and company earnings — are on the decline. Upcoming U.S. company earnings will test this view.

Big U.S. hitters due to issue fourth-quarter results next week include Micron Technology, Netflix, and major Wall Street banks Citi, JPMorgan and Wells Fargo. Money has started trickling back into equity funds this week thanks to Powell’s dovish comments. But earnings expectations remain low nevertheless: I/B/E/S Refinitive data indicates S&P 500 earnings will have grown 14.5 percent in the fourth quarter of 2018, the slowest since Q3 2017, sharply lower than the 28.4 percent rise in Q3 2018 and almost flat year-on-year.

And confidence in Europe is even lower — earnings-per-share (EPS) for STOXX 600 companies is expected to have grown 7.1 percent in Q4, half levels seen in Q3 and Q4 2017. Forecasts as recently as November were for 14 percent growth but a spate of nasty macro-economic surprises has caused analysts to downgrade their view.

Some strategists do reckon markets have got ahead of themselves by pricing in a growth slowdown or recession. Company results could show who’s getting it right.

(GRAPHIC: U.S. vs Europe valuations – tmsnrt.rs/2H5O4vx)

(GRAPHIC: Citi Economic Surprise Indicator – tmsnrt.rs/2H5OzWr)

4/SHIPPING NEWS

China and the United States have held their first face-to-face talks since the two world powers agreed a 90-day trade war truce. Described as “extensive”, the talks have helped cheer up global equity investors. But risk aversion could rear its head again should hard data from China show what damage has been done to the economy by the initial tariff rounds.

In particular focus will be Chinese export growth. Analysts expect that to have cooled for a second month in December as front-loading of U.S.-bound cargoes faded. Poor data will be another incentive for Beijing to be more accommodative with fiscal and monetary policies. It has already engaged a reserve ratio cut for banks which should pump the equivalent of $115 billion into the economy. What remains to be seen is how accommodative it might be with U.S. demands on trade.

   

(GRAPHIC: China policy easing – reut.rs/2mF5iTc reut.rs/2mF5iTc)

5 TURKEY’S RE-BALANCING ACT

Having just suffered its worst year in the best part of two decades, the Turkish lira’s had a tumultuous start to 2019. It’s weakened more than 2 percent year-to-date and worse still, it experienced a flash crash on Jan. 3, which was a reminder of all its vulnerabilities: from geopolitics to upcoming elections and haphazard monetary policy.

On the positive side, the lira’s near-30 percent tumble in 2018 had got rebalancing off to a fast start; Turkey is now posting large current account surpluses and inflation, albeit high, is on the decline. But many worry that these very factors could tempt the central bank back onto the interest rate-cutting path. On Wednesday, at its first meeting of 2019, the central bank is expected to stand pat, with 17 out of 19 economists seeing key rates steady at 24 percent. But two predicted a cut and the bank’s own survey finds that Turkish interest rates are seen falling almost 500 basis points in the coming year.

The picture is less dramatic in South Africa which is seen leaving interest rates unchanged at 6.75 percent on Thursday, with rising inflation likely prompting a rate hike in May.

(GRAPHIC: Turkey interest rate & inflation – tmsnrt.rs/2SLpzoE)

Reporting by Jennifer Ablan in New York, Marius Zaharia in Hong Kong; Jamie McGeever, Josephine Mason and Karin Strohecker in London; compiled by Sujata Rao

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Canadian Tire and NuPort Robotics to commercialize Canada’s first automated heavy duty trucks

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Canadian Tire Corporation and Toronto based start-up NuPort Robotics, Canada’s first autonomous trucking company, are partnering with the Ontario government to invest $3 million to undertake an automated heavy duty trucking project to test a “first-of-its-kind-in-the-world” technology. 

The breakthrough technology provides a transportation solution for the middle mile, the short-haul shuttle runs that semi-tractor trailers make between distribution centres, warehouses and terminals each day.

It is designed to enable next-generation automated trucks that are more fuel efficient, safer to operate, and provide an enhanced driver experience.

Backed by $1 million in support from the Ontario government through Ontario’s Autonomous Vehicle Innovation Network and matched by $1 million investments from Canadian Tire and NuPort Robotics, respectively, the two-year project is applying proprietary, artificial intelligence technology from NuPort Robotics to retrofit two conventional semi-tractor trailers – which will always be attended by a driver – with high-tech sensors and controls, a touchscreen navigation system, and other advanced features such as obstacle and collision avoidance.

Caroline Mulroney, Minister of Transportation, says: “Ontario is proud to be a global leader in automated and connected vehicle technology and this innovative project is an exciting milestone toward automated vehicle tech in the trucking industry.

“Ontarians rely on goods being delivered by trucks across the province every day and projects like this are demonstrating the ways that automated truck technology could help businesses meet delivery demands more efficiently while supporting a strong supply chain in Ontario.”

Vic Fedeli, Ontario Minister of Economic Development, Job Creation and Trade, says: “This project applies unique and made-in-Ontario Artificial Intelligence technology that offers increased safety and efficiency, with a reduced carbon footprint, to the goods supply chains on which we all rely.

“This is the latest example of how Ontario’s Autonomous Vehicle Innovation Network acts as a catalyst, fostering partnerships between ambitious technology start-ups and industry to develop and commercialize next generation transportation technologies that strengthen our economy and benefit society.”

Raghavender Sahdev, CEO of NuPort Robotics, says: “The trucks are currently transporting goods between a Canadian Tire distribution centre in the Greater Toronto Area and nearby rail terminals within a 12.5 mile radius, and early results are promising.

“The aim of the project is to develop a system that incorporates an autopilot feature for conventional trucks with a driver, leading to the most efficient way to drive and increase safety.

“The sensors work as a ‘safety cocoon’ to cover blind spots and prevent accidents and the end result is peak fuel efficiency, meaning lower carbon emissions, and peak driving performance for an overall more optimal transportation experience.”

NuPort Robotic’s approach to autonomous trucking is unique in the industry because it focuses only on solving the middle mile challenge, using a known set of predetermined trucking routes that are repetitive and high frequency as opposed to general highway driving.

Ultimately, when implemented on fixed routes in the future, Canadian Tire will benefit from faster commercial deployments and improvements in supply chain sustainability.

Gary Fast, vice-president of transportation, Canadian Tire, says: “Canadian Tire embraces innovation and is always testing new technologies to improve our operational efficiency and safety.

“As proud Canadian companies, the safety of all stakeholders, including drivers, employees, customers, and public will be the top priority as we work together towards deployment of this technology.”

Cari Covent, vice president of intelligent automation, Canadian Tire, says: “Over the last three years, Canadian Tire has made a significant effort to solve complex business problems by using the Canadian start-up Artificial Intelligence ecosystem, and NuPort Robotics exemplifies what we look for in a start-up with a focus on innovation, automation and artificial intelligence.”

Sahdev says: “As NuPort Robotics continues to develop new technologies to overcome middle mile supply chain problems and advance autonomous trucking, I am extremely grateful for the support of the Ontario Government through AVIN and the Ontario Centre of Innovation.

“With their continued support, we are striving to position Canada as the leader in autonomous transportation.”

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Constellation Software is money in the bank, this fund manager says

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If you’re looking for a long-term hold in Canadian tech then Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) should definitely be on your radar. So says Jason Del Vicario of Hillside Wealth Management who likes not only Constellation but its recent spin-off Topicus (Topicus Stock Quote, Chart, News, Analysts, Financials TSXV:TOI) which Del Vicario says could do even better than CSU over the next ten years.

Software consolidator Constellation has been running on the same game plan for years, buying small vertical market software companies providing so-called mission critical software solutions globally. Over the years CSU has completed over 500 such acquisitions, buying the top names in their respective niche verticals and then using its clout and breadth to grow the business and expand into new markets. The resulting cash flow is then plowed back into more acquisitions and the cycle repeats.

The strategy has worked wonders for Constellation, which has grown its revenue from $631 million in 2010 to almost $4 billion for 2020 while taking earnings from $4.12 per share in 2010 to $20.59 per share this past year.

Shareholders were given a special treat last month when Constellation spun out recently acquired Topicus, giving CSU owners about 1.9 Topicus shares for every Constellation share as a dividend-in-kind. Constellation bought Netherlands-based software company Total Specific Solutions BV (or TSS) in 2013 and that subsidiary recently acquired Topicus BV, a Dutch information service company focusing on sectors such as healthcare, education and finance.

Topicus was singled out by Constellation founder Mark Leonard for its ability to grow without using outside shareholder funding. Leonard said the spin-out was part of the intention since a purchase agreement was struck last year.

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Nuvei wins price target raise from National Bank

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Strong quarterly results and an even brighter outlook for 2021 are reasons to celebrate for Canadian payments company Nuvei (Nuvei Stock Quote, Chart, News, Analysts, Financials TSX:NVEI), according to National Bank Financial analyst Richard Tse. In an update to clients on Wednesday, Tse left his rating unchanged at “Outperform” while raising his price target from C$85.00 to C$100.00.

Montreal-headquartered Nuvei is a provider of payment technology solutions to merchants and partners around the world, with a platform geared for high-growth mobile commerce and e-commerce markets. Nuvei’s solutions include a fully integrated payments engine with global processing capabilities, a turnkey checkout solution and a suite of data-driven business intelligence and risk management tools and services.

The company released its fourth quarter and full year 2020 financials on Wednesday, showing Q4 revenue of $115.9 million, up 46 per cent year-over-year, and adjusted EBITDA of $51.3 million, up 61 per cent year-over-year. Total dollar value of transactions processed by merchants (‘total volume’) with Nuvei rose by 53 per cent to $13.9 billion. (All figures in US dollars except where noted otherwise.)

The 2020 year featured revenue up 53 per cent to $375.0 million and adjusted EBITDA up 87 per cent to $163.0 million, with total volume rising a full 76 per cent year-over-year to $43.2 billion.

“Our performance continues to be driven by strong momentum in the high-growth verticals we serve, as well as by our customizable, scalable and feature-rich technology platform which provides one of the industry’s most complete payment technology solutions going well beyond merchant acquiring,” said Philip Fayer, chairman and CEO, in a press release.

The company said the fourth quarter represented the strongest growth yet experienced by Nuvei, driven by wallet share expansion from current merchants along with accelerated uptake of new merchants. New e-commerce business almost tripled compared to a year earlier, Nuvei said, while the company expanded its connectivity coverage over the quarter, introduced new product innovations on its platform and continued to execute on M&A.

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