April 22nd, 2020

Daily Market Commentary

Canadian Headlines

  • Canadian stocks fell the most since April 1 as investors found little to to cheer in Tuesday’s session. The S&P/TSX Composite Index dropped 3.1%, with all eleven sectors declining. Information technology retreated after strong gains prior to Tuesday’s session from Shopify Inc. Canadian companies are starting to release financial results amid an precedented earnings season as coronavirus lockdowns bring the economy to a screeching halt.
  • Toronto home sales and listings plunged in the first part of April as the Covid-19 pandemic curbed demand in Canada’s largest city. Greater Toronto saw 1,654 home sales in the first 17 days of April, a 69% drop from the same period a year ago. Few owners were trying to sell. New listings fell 64% to 3,843, the Toronto Regional Real Estate Board said in a statement. The figures are for the city of Toronto and its suburbs. Average prices were 1.5% lower than a year ago, suggesting the market remained tight enough to provide support for pricing levels seen in 2019, TRREB said. The average selling price for all homes was C$819,665 ($577,000). Detached homes fell 4.6%, dropping just below C$1 million.
  • Oil tankers carrying enough crude to satisfy 20% of the world’s daily consumption are gathered off California’s coast with nowhere to go as fuel demand collapses. Almost three dozen ships — scattered in waters from Long Beach to the San Francisco Bay — are mostly acting as floating storage for oil that’s going unused as the coronavirus pandemic shutters businesses and takes drivers off the road. Marathon Petroleum Corp.’s refinery in Martinez, California, has been idled and others, including Chevron Corp.’s El Segundo refinery, have curtailed crude processing as the state orders residents to stay at home.
  • Canada’s new long-term plan to bury high-level commercial nuclear waste in Ontario is drawing opposition from U.S. politicians as well as Canadian environmentalists. But the project’s backers hope they can make a case for the C$23 billion ($16.5 billion) project’s safety while seeking grassroots public support. The project aims to store 5.2 million bundles of spent fuel around 500 meters underground at a location near Michigan or Minnesota. It’s being developed by the Nuclear Waste Management Organization (NWMO), which consists of Canada’s nuclear power generating companies and includes Ontario Power Generation, New Brunswick Power Corp., Hydro-Quebec and the public-private Atomic Energy of Canada Ltd.

World Headlines

  • The Stoxx Europe 600 Index rose broadly in the wake of Tuesday’s slump. Brent crude erased a tumble that reached 17% earlier, while West Texas oil also pared most of its slide. Treasuries edged lower along with the dollar and European bonds fell. That region’s policy makers plan to hold a call on Wednesday evening where they may discuss whether to accept junk-rated debt as collateral from lenders, officials familiar with the matter said.
  • U.S. equity futures advanced with European stocks on Wednesday as investors weathered continued volatility in energy markets and perused the latest earnings reports. Oil pared a decline, while gold gained. S&P 500 Index contracts climbed after the gauge slumped more than 3% a day earlier, when investors shrugged off the progress of a fresh relief package to counter the economic hit from the coronavirus.
  • Bad debt at Chinese banks climbed in the first quarter after the coronavirus outbreak brought the world’s second-largest economy to a standstill. The non-performing loan ratio rose to 2.04% at the end of March, the China Banking and Insurance Regulatory Commission said on Wednesday. The ratio stood at 1.86% in December. Lenders delayed 880 billion yuan ($124 billion) in loan repayments for smaller businesses in the period, the regulator said at a press briefing in Beijing.
  • Oil in London traded near a 21-year low as the global benchmark was sucked into the rout that sent U.S. futures below zero for the first time ever this week. Brent for June delivery slumped as much as 17%, before paring losses to trade near $19 a barrel. West Texas Intermediate crude fell 2.9% in New York, having lost almost half its value on Tuesday. Prices continue to slide amid fears that the massive glut that sent May WTI to as low as minus $40.32 on Monday is only going to get worse. With global demand crushed by coronavirus lockdowns, concerns that the unwanted oil is going to overwhelm storage capacity have triggered a selling frenzy. Oil ministers from the OPEC+ coalition held an unscheduled conference call on Tuesday to discuss the rout, though a closing statement signaled they didn’t settle on any new policy measures.
  • Gold rebounded above $1,700 an ounce as investors weighed the impact of oil-market turmoil and continued volatility across commodities and equities. Bullion futures in New York rose the most in nearly two weeks, bringing this year’s increase to about 13% as investors shun risk. With central banks and governments churning out stimulus to combat the impact of the coronavirus, some are predicting further gains. Bank of America Corp. raised its 18-month target to $3,000 an ounce, more than $1,000 above 2011’s record.
  • The Senate sent a $484 billion package of new pandemic relief funds to the House for likely approval Thursday, as lawmakers and the Trump administration began turning their attention to the next round of stimulus for a stalled U.S. economy. The legislation passed by the Senate Tuesday — which includes $320 billion for the Paycheck Protection Program designed to help struggling small businesses keep their workers on the payroll — is widely regarded as an interim step as the coronavirus pandemic continues to cause death and economic havoc.
  • AT&T Inc. posted a 4.5% drop in revenue from a year ago and withdrew its forecast of 2% revenue growth for the year, saying it can’t provide a financial forecast for 2020 due to the coronavirus pandemic. Homebound customers craving videoconferencing and cellular connections helped improve some of AT&T’s slumping consumer businesses. AT&T lost 1 million TV subscribers but gained 27,000 wireless customers. Earnings, excluding certain items, were 84 cents a share on $42.8 billion in sales. Analysts predicted 84 cents on $44 billion, according to an average of more than 18 estimates compiled by Bloomberg.
  • Commodity traders may have to pay up as they refinance at least $16 billion of loans due this year following a historic collapse in crude prices to below zero. Energy traders Gunvor Group and Mercuria Energy Group may be among the first to test banks’ appetite as they have a combined about $2 billion of loans due in June, according to data compiled by Bloomberg. Spokespeople for both companies declined to comment on refinancing when contacted by Bloomberg News. The oil slump and wider coronavirus uncertainty will likely complicate the industry’s regular refinancings as risk-wary banks are already demanding higher rates across the loan market as well as taking longer than the usual month to syndicate deals. A number of small commodity traders in Asia have already said that lenders are increasingly reluctant to give credit amid plunging demand for commodities.
  • Netflix Inc. said the explosive growth in subscribers it posted last quarter — the strongest in its history — may not last beyond the stay-at-home orders. Adding a record 15.8 million subscribers, Netflix benefited in the first quarter from an unprecedented health crisis, the global coronavirus pandemic. With billions of people stuck at home, the world’s largest paid online TV network experienced an explosive jump in customers in March, with many binge-watching “Tiger King” and “Love Is Blind” to ride out the quarantine.
  • Investments in U.S.-listed fixed income exchange traded funds declined 34% last week for the fourth straight week of inflows. Corporate bond ETFs led the inflows. Government bond ETFs had the second biggest change from the previous week. Net inflows to ETFs totaled $4.92b in the week ended April 21, including the effect of leveraged funds, compared with $7.43b the prior week
  • The total number of coronavirus cases in Singapore exceeded 10,000 on Wednesday as infections among migrant workers living in dormitories continued to surge. As of noon, the city-state preliminarily recorded 1,016 new cases, according to a statement by the health ministry, bringing the total number of Covid-19 infections to 10,141. Of the new cases, the vast majority are work permit holders living in dormitories across the island, while 15 cases are Singaporeans or permanent residents, the statement said. The rising number of cases in the facilities, where more than 200,000 people live, has complicated efforts to curb the spread of the virus in Singapore, even as the government looks for new ways to house workers who may be sharing living spaces with 10 or more people.
  • Facebook Inc. will invest $5.7 billion in the digital assets controlled by Asia’s richest man, the U.S. social-networking giant’s biggest deal since the 2014 purchase of WhatsApp as it seeks a broader foothold in its biggest global market. The U.S. company will buy about 10% of Jio Platforms, becoming the largest minority shareholder, Reliance Industries Ltd. said in a statement Wednesday. Separately, Facebook said the deal would bring together JioMart, an e-commerce venture of Mukesh Ambani and its WhatsApp platform to enable people to connect with businesses. Shares of Reliance Industries jumped 10% on Wednesday in Mumbai, helping the Indian tycoon reclaim the title of Asia’s wealthiest person from Alibaba Group Holding Ltd. founder Jack Ma. The rally compares with the 2.4% gain in India’s benchmark S&P BSE Sensex index.
  • Chevron Corp. will be forced to effectively wind down its operations in Venezuela, dealing the Maduro regime’s crumbling oil industry another blow as U.S. President Donald Trump maneuvers for regime change in the Latin American nation. The U.S. Treasury Department will no longer allow the company to drill wells, sell and buy crude oil or oil products or transport them, according to the Office of Foreign Assets Control. Chevron is authorized to ensure the integrity of operations and assets in Venezuela through Dec. 1. The decision also affects four U.S. oilfield service providers: Halliburton Co., Schlumberger Ltd., Baker Hughes Co. and Weatherford International Plc.
  • Delta Air Lines Inc. vowed to cut its daily cash burn in half by the end of June as the carrier rushes to scale back operations amid a collapse in travel demand. The company will be going through only $50 million a day when the second quarter draws to a close, Chief Financial Officer Paul Jacobson said in a statement Wednesday as Delta reported financial results. The figure was $100 million at the end of the first quarter as the coronavirus pandemic spread and many customers canceled trips. U.S. airlines are slashing expenses and relying on government aid to get through the worst crisis in the industry’s history. Delta, the first major U.S. carrier to report first-quarter earnings, has parked 650 aircraft, cut flying capacity 85% this quarter, frozen hiring and lowered executive pay to save money. About 37,000 employees — more than a third of Delta’s workforce — have agreed to take short-term leave without pay.
  • The federal government has awarded $7.2 billion in contracts to fight the coronavirus pandemic, including one that would pay a little-known Massachusetts biotech firm more than its reported revenue for the last three years combined. Shares of Moderna Inc. rose sharply after the U.S. Department of Health and Human Services agreed to pay as more than $400 million for the company to develop and test its Covid-19 vaccine now in an initial clinical trial. The company’s shares were up 152% this year at Tuesday’s close. It’s just one example of the thousands of federal contracts awarded by the Trump administration to fight the coronavirus, according to a review of federal data compiled by Bloomberg Government. Some companies have secured nine-figure deals to supply thousands of ventilators, face masks, hospital capacity and other critical services needed to manage the outbreak.
  • European Union leaders head to a key virtual summit on Thursday without any concrete proposals from the bloc’s institutions on how to finance a controversial economic recovery fund, raising the chances of yet another inconclusive showdown. A “roadmap” distributed to national delegations from EU Council President Charles Michel, who will chair the video conference, contains no details on the amount, the specific objectives, the timeframe and nature of the investment needed to stem the deepest recession in living memory. The absence of detailed proposals paves the way for a difficult call, amid deep divisions between member states on how to share the burden of the spending needed to salvage their damaged economies.
  • Turkey lowered interest rates for an eighth time in less than a year, surprising most economists as the central bank looks past the lira’s steep decline to spur credit and mitigate the economic fallout from the coronavirus outbreak. The Monetary Policy Committee, led by Governor Murat Uysal, reduced its benchmark on Wednesday to 8.75% from 9.75%. Only two of 28 economists in a Bloomberg poll correctly predicted the move, with the rest seeing a smaller cut or a hold. The MPC said risks to its year-end inflation forecasts are “on the downside” after declines in commodity prices and despite the lira’s depreciation. The Turkish currency slipped as much as 0.2% to a session low after the decision and traded at 6.9959 per dollar as of 2:20 p.m. in Istanbul.
  • Italy plans to more than double an economic stimulus package, and Spain will seek to extend emergency powers as European leaders carefully weigh their next moves to combat the coronavirus crisis. With more than 100,000 fatalities in the region, Europe’s leaders are seeking to strike a balance between saving lives and securing jobs. The first steps to loosen curbs in Austria, Denmark and Norway have put pressure on other countries to follow suit, despite the lack of treatments or a cure. The concern is that the crisis could be longer and deeper if infection rates rise again.
  • India is quickly running out of space to store a swelling stockpile of fuel as every possible container — including those in the 66,000 pump stations nationwide — threatens to overflow. Refiners in India, the world’s third-biggest oil consumer, have filled 95% of about 85 million barrels of fuel storage capacity, according to officials at three state-owned processors. The virus-inflicted lockdown of more than a billion people has pummeled India’s appetite for key transportation fuels as travel and movement remains restricted in large swaths of the world’s second-most populated country.
  • Huawei Technologies Co. is emerging as the runaway winner in China’s $170 billion effort to build out its fifth-generation wireless networks, part of a concerted effort by Beijing to seize the lead in a key technology from the U.S. while rebooting a virus-stricken economy. Since the beginning of the year, Huawei has secured 28.4 billion yuan ($4 billion) worth of 5G equipment orders from the country’s largest carrier, China Mobile Ltd., beating out competitors like Ericsson AB and ZTE Corp. to win more than half of the 5G contracts awarded by the operator during the period, according to an analysis of procurement data by Bloomberg News. Huawei is relying on its home market more than ever, at a time its growth has all but evaporated. The 5G contract haul shows Huawei is benefiting from the domestic market and building its telecommunications expertise despite the Trump administration’s blacklisting last year. Beijing has forcefully defended Huawei, and the country’s three wireless operators — all state-backed — have added support through network contracts.
  • Bad debt at Chinese banks climbed in the first quarter even as lenders deferred payments on and rolled over a combined 1.5 trillion yuan ($212 billion) in loans after the coronavirus outbreak brought the world’s second-largest economy to a standstill. After allowing banks to take a more lenient approach on how they classify bad debt, regulators in Beijing on Wednesday revealed the industry’s non-performing loan ratio nudged up just 0.06 percentage point to 2.04% at the end of March. The increase was held at bay as lenders agreed to let small businesses defer payments on 880 billion yuan in debt and rolled over another 576.8 billion yuan, according to the China Banking and Insurance Regulatory Commission.
  • China is considering holding its highest-profile annual political meeting in late May, according to people familiar with the matter, after it was postponed for the first time in decades amid the coronavirus pandemic. The gathering of the National People’s Congress, usually runs for about two weeks in Beijing and is attended by President Xi Jinping and other top leaders. At least one set of dates being considered is May 23-30, according to the people, who asked not to be identified.

*All sources from Bloomberg unless otherwise specified