March 25th, 2020

Daily Market Commentary

Canadian Headlines

  • Canadian stocks soared the most in at least 43 years, joining a global rally on hopes government stimulus will soon flow to economies hammered by the coronavirus. The S&P/TSX Composite Index rose 12% on Tuesday, the biggest one-day percentage jump since at least 1977 when the index’s predecessor began. South of the border, stocks boomed with the Dow Jones Industrial average posting its best day since 1933 as a U.S. stimulus bill of about $2 trillion inches forward. Investors had been searching for buying opportunities amid the brutal sell-off but volatility has made it difficult to call a bottom on the stocks. The Canadian market is still down about 30% from its February peak.
  • Canadian Prime Minister Justin Trudeau won parliamentary support for his C$82 billion ($57 billion) stimulus package to bolster an economy ravaged by the coronavirus. The plan received approval from the House of Commons in the early hours Wednesday morning after tense negotiations with opposition lawmakers over how much emergency spending powers the governing Liberals should be given to tackle the crisis. The bill now needs Senate approval before becoming law. The legislative passage of the stimulus plan means the government will be able to pump money into the economy quickly as much of the country shuts down to halt the spread of the deadly virus. Almost one million Canadians filed for jobless claims last week, with growing evidence the damage from the sudden halt of economic activity is only going to worsen.
  • Almost one million Canadians joined the unemployment line last week and two new surveys show the economic pain is just beginning. The pandemic-induced shutdown of the economy has resulted in job loss or reduced work hours for 44% of Canadian households, the Angus Reid Institute said Wednesday. Most of those who are out of work say their employers aren’t offering any emergency support. And the layoffs are likely to continue. Confidence among small businesses dropped to a record low this month and half of firms expect full-time employment levels to be down over the next few months, according to a separate survey by the Canadian Federation of Independent Business.
  • Record low prices for heavy Canadian crude have prompted one of the biggest operators in the oil sands to take the rare step of shutting production. Motivated by the “extremely low” prices, Suncor Energy Inc. announced on Tuesday that it will shut in one of its two so-called trains at its two-year-old, 194,000 barrel a day Fort Hills oil sands mine. The company also is delaying the start up of its MacKay River oil sands wells to May, after operations were halted in December because of a malfunction and fire. The move comes as the coronavirus pandemic slashes worldwide oil demand just as Saudi Arabia ramps up oil production in a price war with Russia, sending global oil benchmarks to the lowest prices in almost two decades. Western Canadian Select, the oil-sands benchmark, fell to $8.54 a barrel, which will be a record low if it settles at this price, data compiled by Bloomberg show. The value of the bitumen itself, excluding the light condensate that’s added so the heavy crude can be pumped through pipelines, was valued at just $3.83 a barrel.

World Headlines

  • European equities surrendered early gains and turned negative in volatile trading, falling along with U.S. futures, amid renewed worries over the economic blow from the coronavirus outbreak. The Stoxx Europe 600 Index was down 0.6% at 10:56 a.m. in London. The benchmark earlier rose as much as 4.8% as a deal struck by U.S. lawmakers stoked optimism about stimulus measures to combat the economic fallout from the virus. The latest figures from Spain showed it had its deadliest day yet, while Germany’s public health authority warned that the nation is just starting its fight against the virus.
  • U.S. stock futures rallied for a second day after the White House reached a deal with Senate Democrats and Republicans on a $2 trillion stimulus plan to respond to the economic shock of the coronavirus outbreak. The deal was reached after several days of tense negotiations and the Senate is expected to vote on Wednesday. Contracts on the S&P 500 rose 1.3% to 2,469 as of 8:25 a.m. in London, after dropping as much as 2.1% earlier. Dow Jones Industrial Average contracts climbed 2.3%.
  • Japan’s Nikkei 225 Stock Average posted its biggest daily advance since 2008, helped by growing hope for policy steps from global governments to cushion the blow from the coronavirus outbreak. The blue-chip measure surged over 8% Wednesday as the Trump administration was said to have struck a deal with the Senate on a stimulus package worth almost $2 trillion. The Topix climbed for a sixth day, and was the best performer among major equity indexes in Asia. Electronics giants and automakers provided the biggest boosts.
  • Oil turned lower on an unprecedented hit to consumption, even as policy makers attempted to kickstart the global economy. Futures in London erased earlier gains to trade down 4.2%. The boss of trading house Vitol Group said demand is down about 15 million to 20 million barrels a day and will shrink further with India’s decision to go into lockdown. Prices had earlier rallied as the White House struck a deal with Senate Democrats and Republicans to provide $2 trillion of spending and tax breaks. The specter of collapsing demand and a rapidly expanding oil surplus have made recent price recoveries short-lived. Brent crude’s six-month time spread has sunk into the deepest contango in more than a decade, signaling oversupply, and gauges of the physical market are also pointing to weakness, with traders expecting the glut to worsen.
  • An extraordinary squeeze in the gold market has forced the main U.S. exchange to take action as the global pandemic shuts down physical trading routes just as investors are racing to buy the metal as a safe haven. Banks and traders typically ship gold around the world on commercial flights, linking the trading hubs of London and New York with vaults and refineries in Switzerland, Hong Kong and Singapore. But as the coronavirus grounds flights and refineries shut down, it’s becoming harder to trade between global markets. Gold futures on the Comex in New York shot to the highest premium to the London spot price in four decades on Tuesday. This morning, the difference was still nearly $40 an ounce. The skyrocketing spread between New York and London gold price underscores how desperate investors are to find a safe haven amid the market tumult brought on by the virus.
  • The Trump administration struck a deal with Senate Democrats and Republicans on an historic rescue package that tees up more than $2 trillion in spending and tax breaks to bolster the hobbled U.S. economy and fund a nationwide effort to stem the coronavirus. “At last we have a deal,” Senate Majority Leader Mitch McConnell said early Wednesday on the chamber’s floor. “I’m thrilled that we’re finally going to deliver to the country.” The legislation was still being drafted but McConnell said the Senate would vote on it Wednesday. It would still have to pass in the House before it gets to President Donald Trump’s desk. House Speaker Nancy Pelosi had consulted with Schumer throughout his negotiations with Treasury Secretary Steven Mnuchin.
  • The British government is planning to shut down Parliament for four weeks from Wednesday night in the latest attempt to slow the spread of coronavirus. The U.K. outbreak is most advanced in London and several politicians have fallen ill, including a health minister. Parliament had been scheduled to break for Easter on March 31, but the House of Commons will close on Wednesday if — as expected — lawmakers vote for the move, British officials said. The Commons would reopen on April 21. The U.K.’s decision puts it ahead of other countries’ parliaments. While Italy, Germany and Spain have distancing measures in place and only allow limited numbers into their main debating chambers, they have stopped short of closing parliaments altogether.
  • Germany took a step toward declaring a state of emergency to unlock a historic rescue package aimed at cushioning the blow of the coronavirus pandemic. Finance Minister Olaf Scholz urged lawmakers to set aside constitutional debt limits to combat a crisis that threatens modern life. New borrowing of 156 billion euros ($169 billion), equivalent to half of the country’s normal annual spending, will be used to fund social benefits and direct aid to virus-hit companies. The package comes as the economy braces for its biggest slump in decades. Business confidence is collapsing at a record pace amid restrictions to slow the spread of the disease, and the Ifo economic institute predicted mass bankruptcies in what may be a deeper slump than during the financial crisis.
  • Credit Suisse Group AG froze its plan to buy back as much as 1.5 billion francs ($1.53 billion) of shares this year due to economic uncertainty caused by the coronavirus. The bank purchased 325 million francs worth of shares through March 13 as part of a plan to spend at least 1 billion francs on stock this year, Chairman Urs Rohner said in a letter on Wednesday. The board of directors will review the bank’s goals for further purchases “when there is greater certainty over the market, financial and economic outlook,” he said. Shareholder and executive compensation has come under scrutiny as governments plan to spend an unprecedented amount of public money to help companies weather the economic disruption caused by the virus. Europe’s top banking lobby is trying to find common ground among lenders in the region on whether to scrap dividends to free up more money for lending, according to people familiar with the matter.
  • The Federal Reserve might want to ask its international peers for advice on how to ensure sure its attempts to support smaller businesses work out. Central bankers in the U.K., the euro zone and Japan have spent years pushing measures to boost credit to companies, and are revamping those tools to combat the economic shock from the coronavirus pandemic. Fed policy makers joined their efforts for the first time on Monday with a pledge to create a ‘main-street business-lending program.’
  • The Trump administration is debating whether to defer payments of duties on imported goods from around the world for three months, people familiar with the talks said. Discussions in recent days involving the U.S. Customs and Border Protection and other government agencies about suspending tariffs, across a broad range of goods, for a three-month period sparked push back from domestic industry associations.
  • France is setting up a 4 billion-euro ($4.3 billion) package to help the country’s startups survive the coronavirus pandemic and maintain cash levels in between their fundraising. “Our goal is for startups to pass that crisis and then continue with their growth,” Digital Minister Cedric O said on Radio Classique on Wednesday. “Startups represent between one-sixth and one-fifth of jobs created in France today, so it’s extremely important.” The French Finance Ministry, together with state-backed investor and lender Bpifrance, will detail the plan on Wednesday. The package includes bridge funding, innovation-spending related tax breaks and treasury loans.
  • India’s central bank is weighing opening a new credit facility for banks aimed at boosting their lending to mutual funds, which have been hit by a flood of redemptions, according to people with knowledge of the matter. The Reserve Bank of India and the finance ministry are in favor of a proposal from the industry regulator to open a cash window that fund houses can tap via their banks, the people said, asking not to be identified as the discussions are private. Other measures to ease a growing cash crunch are being discussed and a final decision is expected soon, one of the people said. Policy makers are concerned that stress among mutual funds will translate into higher borrowing costs for companies that depend on the sector for short-term funding. Already, yields on commercial paper issued by corporates surged in recent weeks. Companies and funds are hoarding cash fearing a protracted demand slowdown as the coronavirus spreads.
  • Becoming the first world leader to postpone the Olympic Games could’ve been a disaster for Japanese Prime Minister Shinzo Abe. In a world transformed by the coronavirus, it might play to his advantage. Abe and International Olympic Committee President Thomas Bach agreed Tuesday to put off the Tokyo Games for about a year, the first such delay since the modern multisports event began in the late 19th century. The decision not only means disappointed participants and increased costs, it also deprives Abe — who once dressed up as Super Mario to promote the event — of an opportunity to showcase his efforts to overhaul the Japanese economy. Postponement began to seem inevitable as the Covid-19 outbreak prompted lockdowns around the world and Abe was increasingly faced with a choice between delaying the games or watching them collapse. Now, the decision frees him to call an election when he sees fit — potentially as soon as this summer — with the ruling Liberal Democratic Party’s support holding steady and the opposition mired in disarray.
  • As oil crashes due to the impact of the coronavirus, it’s easy to overlook an even more dismal reality for producers: the real prices they’re getting for their barrels are worse still. Having collapsed by about 60% this year, Brent and West Texas Intermediate crude have stabilized at around $25 a barrel, but the price rout is far deeper for actual cargoes, which are changing hands at large and widening discounts to the global benchmarks. The discounts mean that in the physical market, some crude streams are trading at $15, $10 and even as little as $8 a barrel.
  • Goldman Sachs Group Inc. joined a rush of borrowers selling new bonds in Europe on Wednesday after the U.S. pledged a massive stimulus package, adding fuel to a global credit-market rally. The Wall Street giant is offering euro-denominated senior notes a day after Bank of America re-opened the European market for the securities. Yet deals are coming at a cost. Goldman is offering a spread about four times as much as what it paid to sell euro 10-year notes just two months earlier, according to data compiled by Bloomberg.
  • Investors withdrew from U.S.-listed fixed income exchange traded funds last week for the second week of outflows. Broad bond-market ETFs led the outflows. Corporate bond ETFs had the biggest change from the previous week. Net outflows from ETFs totaled $13.2b in the week ended March 24, including the effect of leveraged funds, compared with outflows of $21.3b the prior week
  • WeWork executives used to obsess over the number of people they could pack into each of the company’s shared workspaces. They said a more crowded office helped make the space feel active and spark collaboration when desk mates slid past each other in the hallways. The technique had an added benefit of maximizing revenue from each co-working office. It took only a few weeks and a global pandemic for that strategy to become a deterrent for customers and a major liability for a company that can’t afford further setbacks. The vast majority of WeWork offices remain open, though with far fewer people coming in than before. Offices that have shuttered only did so when explicitly ordered by authorities or after a confirmed case of a Covid-19 infection. Even then, locations are typically closed for an overnight cleaning and reopened the next day.
  • Spain had its deadliest day yet, Germany’s public health authority warned that the nation is just starting its fight against the virus and Tokyo’s governor asked residents to stay indoors this weekend after cases there jumped. The Prince of Wales tested positive, ITV reported. Donald Trump’s administration reached a deal on a package to combat the fallout from the virus. European Union leaders inched towards a rescue package and Germany is closing in on a historic bailout. Trump said he’s hoping to have the economy reopened by mid-April, even as California’s governor said it would be misleading to suggest his state could emerge from its shutdown by then. In Brazil, President Jair Bolsonaro also urged the country to resume normal life to protect the economy.

*All sources from Bloomberg unless otherwise specified