March 18th, 2020

Daily Market Commentary

Canadian Headlines

  • Prime Minister Justin Trudeau will unveil a fiscal stimulus package nearing C$30 billion ($21 billion) on Wednesday in a bid to shield Canada’s economy from tumbling into a recession. The government will release details of a fiscal jolt that will be at least 1% of economic output, according to one person familiar with the plan who spoke on condition they not be identified. A second person said the final figure is about C$27 billion.

World Headlines

  • European stocks struggled to find a floor to the current sell-off as losses resumed on virus worries after Tuesday’s brief respite. The Stoxx Europe 600 Index extended its drop to 3.7% as of 10:11 a.m. in London, tracking the retreat in Asia and U.S. futures. The SPDR S&P 500 ETF Trust fell 5.4% in pre-market trading. All sector gauges dropped except telecom shares, while financial services, miners and industrial-goods stocks led declines. Strategists at Barclays Plc advised that investors stay put as fear reigns about the pandemic’s spread, while uncertainty is “likely near peak levels.” The Stoxx 600 has slumped 35% since late February, with the bottom of the market proving elusive, as concern about the outbreak’s impact on growth and earnings has mostly overshadowed monetary and government easing measures.
  • U.S. equity futures declined along with European stocks on Wednesday, retracing moves from a day earlier while bonds slumped as traders weigh the impact of fiscal and monetary stimulus to counter the effect of the coronavirus. Oil dropped to a 17-year low. Contracts for the S&P 500 once again hit their lower trading curbs after the gauge jumped 6% on Tuesday. An exchange-traded fund tracking the index fell 6.9% in pre-market trading.
  • Rallies fizzled out in Asia, with Japanese shares ending barely up after rising more than 4% at one point. Yields on European bonds soared, with Italy’s jumping more than 60 basis points at one point. Treasury yields also edged up, and the dollar extended its winning streak to a seventh day while the yen also gained. Bloomberg’s industrial-metals index dropped for a third day, with copper, nickel and aluminum among the biggest losers.
  • Oil slid to the lowest level in almost 17 years as the coronavirus pandemic threatened to bring the global economy to a standstill, battering demand just as supply explodes. Futures in New York fell as much as 6.9% to $25.08 a barrel, the lowest since April 2003. The last time crude traded near that level was when severe acute respiratory syndrome, or SARS, hit Asia. Underpinning the collapse in demand are plunging jet fuel markets, which have plummeted into a bearish structure around the world. While policy makers are taking unprecedented steps to buttress economies from the fallout of the virus, the meltdown in crude consumption and the concurrent supply free-for-all by the world’s biggest producers continue to pull prices down.
  • Gold extended gains into a second day after governments and central banks flagged they’ll take more aggressive action to handle the economic fallout of the coronavirus outbreak. Spot bullion advanced as much as 1.2% to $1,546.41 and traded at $1,542.68 as of 6:42 a.m. in Singapore, after snapping a run of declines to rise almost 1% on Tuesday. The metal tumbled Friday to the steepest weekly loss since 1983.
  • Vladimir Putin’s surprise move to allow himself to remain as president until 2036 caught even many Kremlin insiders off guard, leaving some feeling deceived by his motivation for changing the constitution. His sudden reversal — approving a plan that he’d long publicly resisted — was a blow to some senior officials’ hopes that he would find a more elegant way to retain influence once his current term ends in 2024. Some drew parallels to the clumsily announced move in 2011 that saw him retake the presidency from protege Dmitry Medvedev, who had fueled expectations of liberalization that were dashed with Putin’s return. Putin had probably already formed his plan to stay on as president in January, when he unveiled the constitutional shake-up that seemed to respect term limits, four people familiar with the matter said. The amendments were a “grand deception,” said one person close to Putin, while another called them a “smokescreen” intended to allow him to ditch the term-limit restriction at the last moment to minimize potential opposition within the Kremlin elite.
  • The Bank of Japan’s record purchase of exchange-traded funds is clearly having an impact on at least one thing: the Topix index’s outperformance versus the Nikkei 225 Stock Average. The benchmark Topix gained 2.8% over the past two sessions, compared with a loss of 1.6% for the Nikkei 225. The divergence “makes sense,” given the BOJ’s plan to double its annual ETF purchase target to 12 trillion yen ($112 billion) and its previous shift to favor Topix-linked ETFs over those linked to the Nikkei 225, according to Mio Kato, an analyst at LightStream Research who publishes on Smartkarma. The degree of outperformance is “slightly surprising,” he added.
  • Sasol Ltd. may be able to pay off more than half its $10 billion debt burden without resorting to a rights issue, though the challenge is heightened by a coronavirus-induced demand slump and low oil prices. The South African fuel and chemical maker is looking to repay “at least $6 billion” by the end of its next fiscal year in June 2021, and has warned it may need to enact the country’s biggest rights issue in two decades to achieve the goal. Before making a final decision however, the company will focus on conserving cash and asset sales, Chief Financial Officer Paul Victor said on a Tuesday conference call.
  • Steven Mnuchin had an ominous message for Senate Republicans gathered Tuesday in a marble-clad meeting room in the Russell office building: we need to pass a virus stimulus bill, or the U.S. could be looking at a 20 percent unemployment rate. The message was a far cry from little more than a week ago, when Trump and his aides had declared the economy was resilient enough to withstand the coronavirus outbreak. That line had changed, and it fell to Mnuchin to brief the Republicans, who had scattered themselves around the red-draped chamber to maintain their social distancing. Mnuchin said the fallout actually could be worse than the 2008 financial crisis, according to three people familiar with his remarks, and called for a package of more than $1 trillion that would include direct payments to everyday Americans.
  • King Dollar is creating a new headache for virus-battered economies globally, with emerging markets especially vulnerable as they try to cope with collapsing currencies and plunging demand. Investors are fleeing emerging markets in record numbers and piling into the safe-haven greenback, with two emergency interest-rate cuts this month by the Federal Reserve doing nothing to diminish the dollar’s appeal.
  • Boeing Co. is seeking at least $60 billion in U.S. government aid for itself and suppliers as the planemaker races to shore up the cash needed to weather the coronavirus pandemic. The federal support would encompass “public and private liquidity, including loan guarantees,” Boeing said Tuesday. While the proposal’s details are still being fine-tuned, the bulk of the funding would flow through Boeing to its network of partsmakers, said a person familiar with the matter. Other companies could separately use the guarantees to line up their own financing. The bailout push won an enthusiastic endorsement earlier in the day from President Donald Trump, who told reporters that “we have to protect Boeing, we have to help Boeing.” His administration is discussing a broad-based stimulus package of as much as $1.2 trillion to blunt the economic impact of the widening crisis, and airlines and hotels are also rushing to line up government financing with the U.S. travel industry besieged.
  • In Hong Kong, bankers have learned to win stock offerings by video chat, and Morgan Stanley is hosting a virtual meeting for a thousand-plus attendees. At Swiss giant UBS Group AG, wealth management executives have realized trips to see clients weren’t as crucial as thought. In California, an investor in hedge funds said he’s pleasantly surprised by how much faster he can confer with them remotely. Virtual finance may far outlast the coronavirus. Around the world, there are early signs that some of the emergency measures Wall Street is rolling out to keep employees safe in a pandemic will become a lasting practice in an industry that’s long mythologized the handshake. That’s likely to hearten working parents who’ve struggled to persuade managers to let them log in from home, as well as many younger recruits at ease doing things digitally.
  • Poland announced a rescue package designed to shield the economy from the impact of the coronavirus that will cost around 212 billion zloty ($52 billion), or roughly 9% of gross domestic product. The plan to support entrepreneurs and protect the labor market envisages holidays in debt repayments and social contributions, loan guarantees as well as payments of salaries to those unable to work, President Andrzej Duda and Prime Minister Mateusz Morawiecki said at a joint conference in Warsaw. The stimulus package, which will be fast-tracked through parliament, follows an emergency interest-rate cut on Tuesday.
  • China took the unprecedented step of expelling more than a dozen U.S. journalists from three American newspapers, escalating a wider battle with the Trump administration as the coronavirus pandemic threatens to drag the global economy into a recession. China’s foreign ministry on Tuesday said U.S. reporters at the New York Times, Wall Street Journal and Washington Post must hand in their media cards within 10 days, calling the move a response to U.S. caps on Chinese media imposed early this month. It wasn’t immediately clear how many journalists would have their visas revoked.
  • India’s top court ruled out a reassessment of $19 billion in past dues to be paid by telecom companies, a move that could send indebted carrier Vodafone Idea Ltd. into bankruptcy. A three-judge panel, headed by Justice Arun Mishra, said it will consider a proposal by Prime Minister Narendra Modi’s administration seeking a 20-year payment plan for dues worth 1.4 trillion rupees. The years-long case centers around the dispute between the government and mobile carriers over how license and spectrum fees are calculated. Shares of Vodafone Idea plunged as much as 44% after the court threatened to send heads of telecom companies to jail if dues were not paid as per its previous order. Bharti Airtel Ltd. fell over 5%.
  • Japanese trade figures for February showed a continued slide in exports and a sharp plunge in Chinese imports as the coronavirus slammed supply chains, choking off the flow of components feeding Japan’s factories and products for Japan’s stores. Imports dropped 14% from a year earlier, with shipments from China falling by almost half, Ministry of Finance data showed Wednesday. Overall exports declined 1% compared with economists’ forecast for a 4.2% decline. The sharp drop in imports from China clouds the outlook for Japanese manufacturers of everything from cars to electronics. It also dims prospects for exports, which have already slid for 15 months straight, the longest streak of falls since the 1980s.
  • Apple’s price target was cut to $335 from a formerly Street-high view of $400 at Wedbush, which warned of “dark days ahead” for the iPhone maker as a result of the coronavirus. Shares down 6.5% pre-market. Expects the outbreak will “clearly have a major negative impact on Apple’s business model for the foreseeable future,” as the company’s retail stores outside China will likely remain closed“for an extended period of time”
  • European banks took $130 billion made available by the U.S. Federal Reserve on Wednesday, helping ease the funding stress from the coronavirus pandemic. Lenders from the euro zone borrowed the bulk of the money — $112 billion in operations coordinated by the European Central Bank. That’s the biggest use of the crisis-era swap lines since the global financial meltdown more than a decade ago.
  • Investors withdrew from U.S.-listed fixed income exchange traded funds last week following six straight weeks of inflows. Broad bond-market ETFs led the outflows. Government bond ETFs had the second biggest change from the previous week.

*All sources from Bloomberg unless otherwise specified