March 19th, 2020
Daily Market Commentary
- Almost a trillion dollars has been wiped off Canadian stocks in a month as the rout accelerated Wednesday, taking the market through a key support level to the lowest since 2012. The S&P/TSX Composite Index tumbled 7.6%, sending it below levels plumbed during the last oil-market rout from 2014-2016. Now, investors are facing a recession as the coronavirus pandemic and a new oil-price war sent global markets spinning downwards. Even a C$82 billion ($57 billion) fiscal stimulus package unveiled by Canadian Prime Minister Justin Trudeau earlier today did little to comfort investors facing a global economic slowdown as borders clamped down to fight the viral outbreak that has killed over 8,000 people and infected more than 200,000. Travel has been halted, global supply chains are creaking to a standstill and major central banks like the Bank of Canada have announced emergency rate cuts to stem the slowdown.
- In the oil price war between Saudi Arabia and Russia, the first big victim is likely to be Canada. Hit by unfettered supply from the world’s top two crude exporters and reduced demand from the coronavirus, the benchmark blend of crude produced from Canada’s oil sands plunged to a record low of $7.47 a barrel on Wednesday. The fallout: Virtually every barrel of oil produced there will come at a loss at a time when the energy industry generates 10% of Canada’s gross domestic product and a fifth of its exports.
- European shares struggled for direction on Thursday after the region’s central bank unveiled a massive new bond-buying program and President Christine Lagarde signaled there’s “no limit” to the bank’s commitment to the euro. The Stoxx Europe 600 Index pared gains to fall 0.4% at 10:25 a.m. in London after climbing as much as 1.7%. Italian shares outperformed, with the FTSE MIB climbing 1.9% as the country’s bonds led euro-area gains. Among sectors, miners and the travel subgroups slumped again. The ECB launched a bond-buying program worth 750 billion euros ($814 billion) on Wednesday evening as it attempts to protect the region from the economic impact of the coronavirus pandemic. The U.S. Federal Reserve said it was launching a program to support money-market mutual funds.
- The dollar extended its rally and Treasuries climbed as investors sought havens amid a battery of economic and financial measures from global policy makers aimed at easing the market turmoil. Stocks dropped worldwide in volatile trading. U.S. equity futures slipped along with European and Asia shares as traders weighed the growing likelihood of a global recession and corporate defaults triggered by unprecedented lockdowns and supply-chain disruption.
- The yen, so often a haven amid market stress, slumped in a sign of the extraordinary demand for the greenback, which strengthened for an eighth day versus a basket of its major peers to its highest in at least 15 years. WTI oil futures rebounded from their plunge to almost $20 a barrel on Wednesday. The latest developments include the European Central Bank launching a 750 billion-euro ($815 billion) debt-buying program to keep borrowing costs in check, and the Federal Reserve’s debut of a program to support money-market mutual funds. Still, U.S. shares suffered another plunge on Wednesday as investor focus turned to assessing the length of the economic downturn.
- Oil rebounded after plunging to the lowest level in 18 years as policy makers across the globe try to strengthen economies against the impact of the coronavirus pandemic. Futures rose as much as 18% in New York, the most since December 2008, following a 24% rout in the previous session. Prices have cratered over the past two weeks as major producers hike output in a fight for market share while demand falls off a cliff. Signs of stress are already showing in some corners of the world with Canadian oil at a record low and some North Sea fields becoming uneconomic.
- Gold is showing signs of steadying after this week’s price rollercoaster but remains under pressure as haven-seeking investors turn to the U.S. dollar instead. Prices were down 0.8% by mid-morning in London, paring an earlier drop, while the dollar soared to a record on concern there’ll be a global recession because of the pandemic. Investors remain caught between the need to raise cash to cover loses in other assets and a hunt for havens as recession worries mount. Fear-driven buying is still providing some support to gold, said Georgette Boele, a precious metal strategist at ABN Amro Bank NV. “This could dampen the downside in gold prices at the moment.”
- Italy’s lockdown looks set to continue, France will likely extend a confinement period and Britain could tighten restrictions on citizens. European Union chief Brexit negotiator Michel Barnier said he had tested positive and Spain reported a surge in fatalities. European cases now exceed those in China, and Wuhan, the epicenter in the mainland, reported no new infections. China is planning a fiscal stimulus package of several trillion yuan, Reuters reported. Government relief packages reached at least $1.9 trillion, seeking to blunt the fallout from the epidemic. European Central Bank President Christine Lagardesaid the bank has set “no limits” after starting a 750-billion-euro ($820 billion) emergency debt-buying program. Bonds rallied.
- India’s rupee weakened to a new low and stocks slumped anew amid a global meltdown in risk assets, with rising number of coronavirus cases locally adding to anxiety. Sovereign bonds also declined. The rupee declined as much as 1.2% to 75.175 per dollar to go past the key 75 mark for the first time. The S&P BSE Sensex held at a three-year low at close after narrowing losses of as much as 7.5%, while the NSE Nifty 50 Index recovered from lows seen in the days after the government’s cash ban in 2016. Global funds have been seeking the safety of the dollar while fleeing stocks, bonds and other currencies, emulating a pattern that was the hallmark of the 2008 global financial crisis, as countries and policymakers continue to ramp up measures to contain the virus epidemic. Foreigners have pulled a combined $10 billion from Indian shares and debt so far this month — the biggest withdrawal since the U.S. taper tantrum of 2013.
- Prudential Plc, the U.K. insurer besieged by activist investor Third Point, has agreed to acquire a bancassurance partnership in Thailand from FWD Group Ltd. in a 24.5 billion baht ($753 million) deal. Prudential’s Thai unit will buy the exclusive rights from FWD to sell life insurance products through TMB Bank Pcl, the Thai lender said in an exchange filing on Thursday, confirming an earlier Bloomberg report. The initial term for the partnership is 15 years and Prudential will pay in two installments, with 12 billion baht due next month, according to a separate statement by the U.K. insurer.
- As efforts to contain the coronavirus intensify, the number of Americans filing for unemployment benefits is poised for a historic surge. Ohio saw almost 78,000 applications in the past three days, about fourteen times last week’s total, a state spokesperson said Wednesday. In Connecticut, about 30,000 claims have been filed since Friday, about 10 times the average weekly total, the Hartford Courant reported Tuesday. A spokesperson for Illinois said it had received more than 41,000 claims over the last two days, versus 4,445 during the same time last year. These represent a slice of the potentially millions of Americans likely to lose jobs as the virus halts travel and events. It’s forced restaurants and bars to close and slowed business to a crawl in any still open. As more people stay home, a swath of businesses — from coffee shops to dentist offices — are also laying off workers. For a sense of the enormity of what’s coming, those state numbers compare to total U.S. jobless claims of just 211,000 for the week ending March 7, which was in line with recent trends and not far from the 49-year low of 193,000 in April.
- Europe’s credit market rebounded on Thursday after the European Central Bank unveiled a massive package of asset purchases aimed at steering the euro-area economy through the coronavirus outbreak. The cost of default insurance for the region’s safest borrowers tumbled more than 20%, the most since 2011, while the market for new debt issues reopened with four borrowers taking advantage of the improved tone to try and get deals done. Riskier classes of Italian bank bonds and long-dated corporate notes were among the early gainers in European trading.
- Boris Johnson’s government is mobilizing military personnel and preparing to put London in lockdown as it battles to slow the spread of the coronavirus. The prime minister threatened to tighten restrictions on movement in the capital, which is at the center of the outbreak, at a press conference on Wednesday. Johnson will meet London Mayor Sadiq Khan in Downing Street on Thursday to discuss the next steps, according to a person familiar with the matter. Johnson, who has faced criticism for moving too slowly against the disease, is now racing to slow the spread of the coronavirus, which has already killed 104 people in Britain. The virus is spreading fastest in the capital, according to the government. As many as 10,000 extra military personnel are on standby to be deployed to support civil authorities as part of a new “Covid Support Force.” They will include people trained to drive oxygen tankers to hospitals, as well as scientists working on combating the deadly disease.
- Saudi Arabia announced 50 billion riyals ($13.3 billion) in budget spending cuts after the crash in oil prices and the coronavirus outbreak wreaked havoc on its public finances. As the kingdom doubled down in its price war with Russia, authorities signed off on expenditure reductions equivalent to under 5% of the total outlays approved in this year’s budget, Finance Minister Mohammed al-Jadaan was cited as saying by state-run Saudi Press Agency. Only days ago, the central bank unveiled a 50 billion-riyal package to support private businesses hurt by the disease known as Covid-19.
- German business confidence plunged the most in almost three decades, offering chilling evidence that Europe’s largest economy may be headed for its worst recession since the global financial crisis. The drop means sentiment among Germany executives is now the weakest since 2009. That mood is probably reflected across Europe after governments shut down large parts of public life and factories temporarily suspended production to prevent the spread of the deadly coronavirus.
- Malaysia unexpectedly eased its reserve ratio as part of moves to release 30 billion ringgit ($6.8 billion) of liquidity into the banking system as the economy struggles through a lockdown to contain the coronavirus pandemic. Bank Negara Malaysia cut the statutory reserve requirement ratio by 100 basis points to 2%, effective Friday. It will allow principal dealers to use government bonds and Islamic notes of up to 1 billion ringgit as part of reserve requirement compliance for the next year.
- Central banks stepped up their emergency efforts to calm financial markets and support their economies in a historic week of market losses as more of the world shuts down to contain the coronavirus outbreak. Meeting into their nights, policy makers at the Federal Reserve launched a program to support money market mutual funds, hours after those at the European Central Bank announced a 750 billion euro ($820 billion) bond-buying initiative.
- A sell-off in the supposedly safe government bond market this week has unnerved investors looking for a haven amid the risk-asset storm. A slump in open positions in bond futures suggests a rush to meet margin calls may be partly responsible. Calculations by Bloomberg show bond futures positions equivalent to $150 billion in 10-year Treasuries were sold Friday through Tuesday, with total outstanding contracts dropping to the lowest since 2018. This week saw a gauge of global stocks slump around 11% amid the worsening coronavirus outbreak, while an equivalent index of government bonds tumbled over 3%, wiping out gains from earlier in the month.
- President Donald Trump declared himself a “wartime president” on Wednesday, his latest attempt to influence public perception of his handling of a coronavirus outbreak that is swiftly reshaping the presidential campaign. It came on the same day that the stock market nearly erased all the gains since Trump was inaugurated. The Dow Jones Industrial Average has lost more than 30% of its value in just over a month, putting the rally that began on Election Day in jeopardy. The S&P 500 fell as much as 9.8% on Wednesday before a late-session bounce, and bonds tumbled around the world. A strong American economy has always been Trump’s primary case for re-election and he has often touted the rising stock market as a sign of his success. But that argument is gone now with the fallout from the Covid-19 pandemic.
- The Federal Reserve late Wednesday said it was launching a program to support money market mutual funds as alarm over the coronavirus continues to cause strains in short-term funding markets. The Money Market Mutual Fund Liquidity Facility, established under the Fed’s emergency authority, echoes a version that was set up during the global financial crisis. The Treasury Department will provide $10 billion of credit protection. U.S. Treasury Secretary Steven Mnuchin said in a statement the fund would “enhance the liquidity and smooth functioning of money markets, support the flow of credit to hard working Americans, and help stabilize the broader financial system.”
- Google employees in Europe could soon have more power to challenge company decisions after the search giant approved the creation of a council that will represent the interests of thousands of its workers across the continent. Earlier this month, a group of 153 Google employees from 11 European offices wrote to the company’s management requesting the establishment of the council, according to three people familiar with the matter. Last week, Google’s management agreed to take the first steps toward creating the council and will soon begin negotiating with employees about its scope, the people said.
- The biggest casino operator on the Las Vegas Strip weathered the 2008 financial crisis and a gunman’s rampage nine years later that killed 58 and wounded hundreds. But now, with the coronavirus pandemic, MGM Resorts International is asking for help from the federal government. MGM’s chief executive officer, Jim Murren, was among the hospitality-business leaders who met at the White House with President Donald Trump. The administration is considering a $1.3 trillion bailout for a range of Americans as the country shuts down to stem the virus’s spread.
- Thai Life Insurance Pcl has requested pitches from banks for an initial public offering that could raise as much as $700 million on the stock exchange of Southeast Asia’s second-biggest economy, according to people with knowledge of the matter. Thailand’s third-largest life insurer by assets met last month with potential advisers on the proposed share sale, said the people, who asked not to be identified as the discussions are private. While the company is targeting a listing before the end of this year, it hasn’t picked any advisers as the outbreak of the novel coronavirus could lead to potential delays, the people said. Weak market sentiment and a gloomier economic outlook could also weigh on the plan, they said.
*All sources from Bloomberg unless otherwise specified