March 11th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian equities surged Tuesday on expectations governments will introduce economic buffers to counter the impact from coronavirus, Oil rebounded from its worst loss since 1991. Canada’s Prime Minister Justin Trudeau and Deputy Prime Minister Chrystia Freeland said the government will announce measures soon to help offset the drag from the coronavirus and oil-price shock. They join U.S. President Donald Trump and other governments around the world in promising fiscal stimulus. The S&P/TSX Composite Index rose 3.1% to 14,958.09 Tuesday in Toronto. That was the biggest jump since November 2011 but only partly erasing Monday’s 10.3% dive. All eleven sectors rose, with information technology and industrials leading the way. Energy shares also rallied.
• Canadian Prime Minister Justin Trudeau is set to announce financial measures on Wednesday to help mitigate the effects of the widening coronavirus outbreak. Trudeau is scheduled to provide details of the measures at a 9 a.m. press conference in Ottawa. The plan would include providing faster unemployment insurance benefits to people who self-isolate, more funding for coronavirus research and financial assistance to provinces for procurement of medical supplies, according to CTV News. Medical authorities are currently treating 79 cases across the country, and one person has died, according to Health Canada, which assessed the risk to the public as “low,” but said that could change rapidly. Seamus O’Regan, Trudeau’s natural resources minister, said in a tweet due to a persistent head cold he saw a doctor as a precaution and was told to “self-isolate” as he awaits results of a COVID-19 test.

World Headlines

• European stocks advanced on optimism over a coordinated policy response to counter the economic impact of the coronavirus, after the European Central Bank indicated it will act as soon as this week and the Bank of England cut rates. The Stoxx Europe 600 Index rose as much as 2.3% as ECB President Christine Lagarde warned of a 2008-style crisis unless urgent steps were taken to combat the economic shock of the virus, while the FTSE 100 Index gained as much as 2.2% after the BOE lowered rates by 50 basis points to 0.25%. Both gauges subsequently pared gains.
• Wednesday brought another day of reversals in many major markets, with U.S. stock futures dropping, the dollar weakening and Treasury yields falling after surging a day earlier. Contracts on the S&P 500 Index fell about 2% after the U.S. administration failed to offer details on what President Donald Trump said would be “major” measures to combat the economic impact of the coronavirus. The BOE’s emergency move came a week after the Federal Reserve slashed its main rate, and as ECB President Christine Lagarde warned of an economic shock similar to the financial crisis unless leaders acts urgently — comments which suggest the bank may join the wave of crisis easing when it sets policy on Thursday. The U.K. is expected to unveil an expansionary budget later Wednesday, and Germany and Italy have also announced fiscal support.
• Most Asian benchmarks fell, while the yen rallied. Crude oil’s rebound from its biggest crash in a generation faltered after Saudi Arabia said it would boost production. The pound fluctuated before turning higher and gilts declined after the BOE reduced its main interest rate by 50 basis points.
• Oil’s rebound from its biggest crash in a generation halted after Saudi Arabia said it would boost its production capacity, and the United Arab Emirates joined them in raising supplies. Brent crude fell 3.4% in London after being up almost 7% earlier. Saudi Aramco said Wednesday it was making maximum efforts to boost its oil production capacity to 13 million barrels a day from 12 million after pledging to supply a record 12.3 million barrels a day next month in a massive increase. Abu Dhabi National Oil Co. will boost oil supply to over 4 million barrels a day, it said in a statement.
• Investors are piling into gold day-after-day as concerns escalate about the impact of the coronavirus, markets gyrate, and rate-cut expectations jump. Holdings in bullion-backed exchange-traded funds expanded 55 tons in the three days to Tuesday, with increases seen both on days when S&P 500 Indexsank, as well as posting gains. The tally stands at a fresh record, and year-to-date inflows already total more than half of the 323.4 tons added in 2019.
• Iron ore has been able to resist the virus-driven sell-off that’s punished other industrial commodities thanks to tight supplies, expectations for stimulus, and signs China’s mills are still pushing out steel. The first supportive leg of that trio may be about give way, imperiling prices. While export data from top shipper Australia on Wednesday confirmed the slowdown, the figures were accompanied by predictions for a pick-up in flows in the months to come. A resurgence in seaborne supply may drag prices back toward the $70s a ton, National Australia Bank Ltd. said in a note.
• PepsiCo Inc. agreed to buy energy-drink maker Rockstar for $3.85 billion to expand its beverage range as consumers shun traditional soft drinks. The deal is one of the first strategic moves by PepsiCo Chief Executive Officer Ramon Laguarta since he took over from Indra Nooyi in 2018. PepsiCo and rival Coca-Cola Co. have been racing to expand their lineups of faster-growing drinks. Coca-Cola acquired U.K. chain Costa Coffee in 2018 and has debuted a line of spirit mixers.
• Saudi Arabia ordered state-run oil producer Aramco to boost the kingdom’s output capacity by 1 million barrels a day, the latest escalation in a battle for control of the global petroleum market. While delivering the extra capacity may take years and many billions of dollars in investment, the decision shows that Crown Prince Mohammed bin Salman has little intention of pulling back from his aggressive response to the breakdown of OPEC’s alliance with Russia and other oil producers. The country’s energy ministry, headed by Prince Mohammed’s half-brother, ordered Saudi Aramco to boost its output capacity for the first time in at least a decade. The world’s biggest oil exporter will raise capacity to 13 million barrels a day from 12 million, it said Wednesday in a statement.
• The Bank of England unveiled stimulus including its first emergency interest-rate cut since the financial crisis, a move coordinated with the government’s fiscal response to prevent the coronavirus outbreak from crippling Britain’s economy. Policy makers delivered a half-point reduction to take their key rate to 0.25%, introduced a new program to provide easy and cheap credit, and reduced a special capital buffer to give banks even more room to lend. Governor Mark Carney said the virus effect should be short lived, but he and his successor, Andrew Bailey, made clear that the BOE has the space if it needs to do even more.
• Boeing Co. and Airbus SE, which until recently couldn’t make planes fast enough to satisfy airlines, are suddenly contending with the opposite risk: churning out jets with no buyers. Demand for new aircraft is drying up as customers wary of the coronavirus shun air travel, ending the longest boom in aviation history. That 16-year surge began as airlines emerged from another infectious disease crisis, the one related to Severe Acute Respiratory Syndrome, or SARS. Now the new virus points to leaner times. In less than a month, the tumult has clipped about $175 billion in market value from the U.S. aerospace industry, a critical source of American exports. And the future looks just as grim. Passenger revenues could drop as much as $113 billion this year if the virus spreads extensively, according to the International Air Transport Association, the largest global airline trade group.
• Tesla Inc. will build its in-development Cybertruck at a new plant in the U.S., Chief Executive Officer Elon Musk tweeted Tuesday, likely triggering a state-by-state competition similar to one he set off six years ago. The factory will build both the electric pickup and the Model Y crossover for customers on the East Coast, Musk wrote. He didn’t elaborate on which states Tesla is considering beyond saying the company will pick a location in the central U.S.
• Joe Biden has opened an all-but-insurmountable lead over Bernie Sanders in the race for the Democratic presidential nomination, as the party’s voters increasingly turn to him as the candidate they believe is best equipped to take on President Donald Trump in November. The former vice president swept to convincing victories in Missouri, Mississippi, Idaho and, most importantly, Michigan. The state was the biggest prize of the night and is strategically important for both parties in the general election.
• The U.S. has shifted into a new phase of its coronavirus response after efforts to stamp out sparks of an outbreak have failed. Authorities now are focusing on limiting damage. For weeks, the biggest effect of the smattering of identified cases had been a mild sense of worry. That changed this week, with universities canceling classes, patients popping up in offices and nursing homes, and local authorities limited some public gatherings. A fast-growing epidemic in Italy that’s overwhelmed hospitals and led to clampdowns on movement has added to the foreboding— proof that the virus was capable not just of bringing a city in China to a halt, but also staggering a major western urban center.
• Accustomed to running at full speed this time of year, George Powers has watched as a shipping slowdown tied to the coronavirus sidelines more than half his warehouse workers at the usually bustling Port of Savannah on the U.S. East Coast. “Savannah continues to boom as a port of entry and export, but this situation with China with most factories being shut down has curtailed cargo coming in,” said Powers, chief executive of TradePort Logistics LLC, which operates two warehouses at the Georgia seaport. Such is the situation at some of the biggest ports in the U.S. and across the world as the virus outbreak cancels dozens of cargo sailings, and some dock and warehouse workers are being sent home. U.S. seaports could see a slowdown of as much as 20% in February, March and much of April, according to the American Association of Port Authorities. The biggest port in Europe, in Rotterdam, has already seen that level of decline in sailings from Asia recently.
• U.K. Chancellor of the Exchequer Rishi Sunak will promise record spending on infrastructure across the country, as the government is set to use a huge increase in borrowing to end the era of austerity. The finance minister will pledge 600 billion pounds ($770 billion) by the middle of 2025, according to people familiar with the matter. The money will be targeted on roads, railways, housing, digital connectivity and research and development, in a spending spree that is critical to Prime Minister Boris Johnson’s mission.
• Adidas AG forecast first-quarter sales in China will fall by 800 million euros to 1 billion euros ($908 million to $1.1 billion) because of the coronavirus and said that business is slowing in Japan and South Korea. That will strip 400 million euros to 500 million euros from profit, Adidas said. Without considering the effects of Covid-19, Adidas projected currency-neutral sales will grow 6% to 8% this year.
• OMV AG agreed terms for buying a $4.7 billion stake in Borealis AG, a move that will help shift the company’s focus away from oil and gas toward plastics. The acquisition will extend OMV’s global reach while bolstering its petrochemicals business, an area of the oil industry that’s set to grow in coming years even as demand for transport fuels tails off. The purchase may also make the company less vulnerable to criticism from politicians, investors and consumers about the impact of its oil and gas operations on the climate. OMV’s supervisory board has yet to approve the plan to buy an additional 39% stake from Mubadala Investment Co. which it could do in its meeting in Vienna on Wednesday. The deal boosts OMV’s holding to 75%, allowing it to book all sales and earnings from Borealis, which is based just across the Danube from its offices.
• Galp Energia SGPS SA, Portugal’s biggest oil company, is planning a sale of its gas distribution assets in a deal that could value the business at as much as 1.5 billion euros ($1.7 billion), people familiar with the matter said. The company is working with Bank of America Corp. on the potential divestment, according to the people, who asked not to be identified because the information is private. Galp plans to send out preliminary information on the business to potential buyers shortly and will invite initial bids in the next few weeks, the people said.
• The market rout’s effect on dealmaking is widening, as Russian tycoon Mikhail Fridman considers postponing the biggest European initial public offering this year and major private equity and real estate transactions are hit. Wintershall Dea, Fridman’s oil and gas venture with BASF, is considering delaying its proposed listing, people familiar with the matter said. It had been planning an IPO in the second half of the year that would value the company at $20 billion or more.
• Both U.S. President Donald Trump and China’s Xi Jinping have good reasons to deflect political blame for the coronavirus outbreak. And that has both of them zeroing in on the pathogen’s name. As the disease formally designated as COVID-19 expands across the U.S., Trump and other top Republicans have sought to highlight the outbreak’s foreign origin and even use it to justify curbs on immigration — including a wall on the southern border with Mexico. On Tuesday, Trump retweeted supporter Charlie Kirk calling it the “China virus” — with the president agreeing “we need the Wall more than ever!”

*All sources from Bloomberg unless otherwise specified