Daily Agenda: Commodity Rout Continues

Venezuelan oil minister warns of $20 a barrel oil; Argentina elects a new, pro-business leader; boards reportedly finalize Pfizer mega-merger with Allergan.


Andrey Rudakov

Commodity markets continued to indicate weakness after trading resumed Sunday with near-month copper futures contracts off by 3 percent to reach fresh multi-year lows on the Shanghai Futures Exchange. Meanwhile, a warning by Venezuelan oil minister Eulogio Del Pino during a press conference in Iran that crude prices could drop to $20 per barrel without production cutbacks appears to have gone unheeded. Analyst consensus is that no change in supply quotas will emerge from next week’s meeting of the Organization of Petroleum Exporting Countries in Vienna. For now, commodity investors appear to be wagering that demand from primary developing economies will not be sufficient to offset strong global commodity-supply levels anytime soon.

Argentina election victory for pro-business candidate. Mauricio Macri defeated Peronist party candidate Daniel Scioli in national elections yesterday in Argentina. Macri intends to remove currency controls and settle with holdout creditors in pursuit of increased foreign investment as Argentina struggles with a multi-decade-high fiscal deficit.

Pfizer, Allergan merger move ahead. Reports Sunday indicated a final agreement had been reached between the boards of New York’s Pfizer and Allergan, based in Ireland, clearing the way for the proposed $160 billion merger. The new company will rank as the largest drugmaker globally by market capitalization.

PMI indicates rebound in Europe. Purchasing-manager index levels released today by Markit economics indicated improving activity levels in Europe with the headline eurozone composite benchmark reaching 54.4 for November, the highest reading in more than four years. German specific measures also gained with composite levels rising to 54.9 versus a prior 54.2, with particular strength in new order segments, while French data fell short of October levels.

PE firm and pension plan partner to buy Petco. Over the weekend, multiple media outlets reported that the Canadian Pension Plan Investment Board had joined CVC Capital Partners in a successful bid for San Diego, California-based Petco Animal Supplies in a transaction valued at more than $4.5 billion. The company, owned by PG Capital and Leonard Green & Partners, had drawn bids from multiple private equity investors including KKR and Apollo Global Management.

Malaysian investment vehicle to sell off more assets. Troubled state-owned investment vehicle 1Malaysia Development announced today an agreement to sell Edra Global Energy and its subsidiaries in a deal valued at more than $2 billion to China General Nuclear Power Corp., as its attempt to pay down debts through liquidation continues. Prime Minister Najib Razak’s relationship with 1Malaysia continues to be a major political issue with opponents calling for him to step down over accusations of mismanagement and graft.


Portfolio Perspective: Any Decline a Buying Opportunity for Equities

Global stocks were strong last week, with some regions seeing sharp and dramatic recoveries. We see this as strong confirmation of underlying bullish support, and reaffirmation of our strategic approach to equities: For most allocators, portfolios, and even intermediate-term swing traders, the challenge is holding heavy, perhaps aggressive, long exposure to stocks with correct risk management.

Though further distortions are possible, and stocks could potentially experience dramatic shocks in response to any further headline events, any decline is very likely to be a buying opportunity. It is easy to miss the significance in that statement: The probabilities strongly favor any decline leading to further upside.

Adam Grimes is chief investment officer for Waverly Advisors in Pittsford, New York.