March 9th, 2020
Daily Market Commentary
- Another shockwave is about to rip through a world economy already reeling from the coronavirus. Oil prices plunged after the dramatic breakdown of talks between OPEC and Russia prompted Saudi Arabia to launch a price war. Brent crude tumbled by almost a third to $31 a barrel on Monday, as Goldman Sachs Group Inc. told clients it could quickly dip into the $20s. Such an extraordinary slump, if sustained, would savage national budgets from Venezuela to Iran, threaten the heartland of America’s shale revolution and upend politics around the world. For central bankers, the prospect of destabilizing prices are an added complication as they try to model the impact of the coronavirus epidemic on the economy. And a long period of cheap oil prices could even hurt the fight against climate change by slowing the transition to renewable energy.
- A sweeping sell-off across European stock markets dragged several equity benchmarks toward a bear market after an all-out price war in oil dealt a new blow to investors already grappling with jitters about the coronavirus. The main Stoxx Europe 600 Index slumped as much as 6.9%, the most since the aftermath of the 2016 Brexit vote, taking its decline since last month’s record high to more than 20%. The Euro Stoxx 50 Index and benchmarks of Italy, Spain, France and the U.K. were also poised to enter bear territory, as were several sector indexes in the Stoxx 600. Energy shares hit their lowest since 1997 after the collapse of talks between OPEC and Russia prompted Saudi Arabia to launch a price war. More than half of the 19 industry gauges in the Stoxx 600 are down 20% or more since the benchmark’s Feb. 19 peak. After oil shares, banks, travel-and-leisure and mining shares have tumbled the most in that period, down more than 28%.
- Futures on the S&P 500 Index fell about 5%, triggering trading curbsdesigned to limit the most dramatic moves while cash markets are closed. Two major exchange-traded funds that track U.S. benchmark gauges posted even bigger declines in pre-market trading. They are not subject to the same curbs.
- Japan’s biggest contraction in more than five years and a sharp rise in the yen added to escalating concerns among policy makers about the ability of the world’s third-largest economy to fight off the impact of the coronavirus and a crash in oil prices. During a day in which markets were battered by a steady stream of bad news, senior government officials emphasized the need for continued coordination with other nations to address a shared global problem. Currency officials also warned against excessive foreign exchange moves after the yen jumped to its highest level in more than three years.
- Oil markets crashed more than 30% after the disintegration of the OPEC+ alliance triggered an all-out price war between Saudi Arabia and Russia that is likely to have sweeping political and economic consequences. Brent futures suffered the second-largest decline on record in the opening seconds of trading in Asia, behind only the plunge during the Gulf War in 1991. As the global oil benchmark plummeted to as low as $31.02 a barrel, Goldman Sachs Group Inc. warned prices could drop to near $20.
- Gold steadied after volatile trading in Asia as turmoil in the oil market, the spread of the coronavirus, sinking equities, and expectations of easier monetary policy pushed prices above $1,700 an ounce. The metal hit the highest since 2012, before paring gains, as Brent collapsed, futures on the S&P 500 Index sank, and the entire Treasury yield curve dipped below 1% for the first time. Investors have already driven holdings in bullion-backed exchange-traded funds to a record as the coronavirus hurt the outlook for growth.
- The Federal Reserve Bank of New York will increase the size of this week’s overnight and term repo operations, according to a statement released Monday.
- Aon Plc agreed to buy Willis Towers Watson Plc in an almost $30 billion, all-stock transaction announced a year after previous takeover talks fell apart. Under the terms of the agreement, Willis Towers Watson shareholders will receive 1.08 Aon shares for each of their shares, with existing Aon investors owning about 63% of the company once the deal is completed. Willis Towers Watson shareholders will get about $231.99 a share in stock. That’s 16% higher than the company’s closing price on Friday. The deal “combines two highly complementary businesses into a technology-enabled global platform that is more relevant and responsive to client needs,” the companies said Monday in a statement.
- Italy started its first working day after a government decree sought to curb movement within the country’s financial hub. The French finance minister said Europe should prepare “massive and coordinated” fiscal stimulus, while the U.S. is drafting measures to blunt fallout from the epidemic. About half of the world’s countries have now reported cases. The rapid spread, combined with Saudi Arabia’s oil price war, pushed many European and Asian equity indexes toward bear markets. S&P 500 futures hit circuit breakers and Treasury yields tumbled, with the entire curve trading below 1% for the first time.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the third straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $372.7 million in the week ended March 6, compared with losses of $3.72 billion in the previous week, according to data compiled by Bloomberg. So far this year, inflows have totalled $192.5 million.
- Iberdrola SA agreed to buy the 30% stake it didn’t already own in a wind farm project off the coast of France that will cost an estimated 2.4 billion euros ($2.73 billion) to build as the Spanish utility pursues its fast expansion in the clean power market. Iberdrola, which already had 70% in the Bay of Saint-Brieuc project, is buying the 30% interest held by U.K. developer Renewable Energy Systems and Ltd. and French state-owned financial institution Caisse des Depots et Consignations, the company said in a statement Monday. It didn’t mention a purchase cost. Construction of the 496-megawatt wind farm on the northern shore of Brittany is due start next year, the company said. The facility with 62 turbines made by Siemens Gamesa Renewable Energy SA, should be fully operational in 2023 and will produce enough power to cover the needs of 835,000 people.
- Eight days after a Boeing Co. 737 Max went down in the Java Sea, killing all aboard, the planemaker issued a worldwide warning to pilots identifying the malfunction that triggered the crash. The bulletin, which was followed almost immediately by a similar notice from U.S. regulators, listed the symptoms cockpit crews faced in such an emergency and explained how to counteract it. News reports described the problem. Yet less than five months later a second 737 Max went down, slamming into a field in Ethiopia, after suffering the same malfunction. As the one-year anniversary of that crash approaches, many questions remain about why the two pilots lost control.
- Tesco Plc agreed to sell its Asian businesses to Thai billionaire Dhanin Chearavanont for more than $10 billion, clinching a record deal in Thailand even as the coronavirus outbreak damps enthusiasm for mergers and acquisitions worldwide. Britain’s largest supermarket chain said it plans a 5 billion-pound ($6.6 billion) special dividend after the sale of the assets to Chearavanont’s Charoen Pokphand Group. The U.K. grocer is gaining a cash infusion as it focuses on its home market, where it’s cutting thousands of jobs. The company joins Carrefour SA of France and Metro AG of Germany in divesting Asian operations as the European retailers focus on their domestic markets. Metro agreed to sell its Chinese business for about 1.9 billion euros last year, while Carrefour also inked a deal to dispose its operations in China.
- The Federal Reserve is under intensifying pressure to tackle the risk of a worldwide credit crunch as falling commodity prices combine with the spreading virus to hammer financial markets. Less than a week since the U.S. central bank executed an emergency interest-rate cut, there is growing fear among investors that a liquidity crunch is emerging in money markets as stocks and bond yields continue their recent plunge. A key gauge of banking-sector risk, known as the FRA/OIS spread, soared to its highest level since 2011, while dollar-swap spreads widened, suggesting stresses in U.S. markets are becoming increasingly severe. That could again force the Fed to take the lead with action if officials become worried that disorderly markets or a lending squeeze increases the likelihood of the world tumbling into recession.
- Vietnamese Prime Minister Nguyen Xuan Phuc is weighing a proposal to postpone a meeting of Asean finance ministers and central bank governors later this month amid growing concern about the coronavirus outbreak, according to people familiar with the matter. The prime minister is expected to decide on the proposal presented by Vietnam’s central bank and finance ministry as early as this afternoon, said the people, who asked not to be identified because they aren’t authorized to speak about the matter.
- China’s car sales are set to fall 8% this year, an auto-industry group said, slashing its forecast for a second time as the coronavirus keeps buyers away. The prediction given by China Passenger Car Association on Monday signals the world’s largest market is set to shrink for a third straight year. The PCA last month predicted a 5% decline after initially forecasting 1% growth at the end of last year. The outlook is darkening for automakers from market leader Volkswagen AGand Tesla Inc. to smaller local contenders that were already battling an unprecedented slump before the outbreak. PCA Secretary General Cui Dongshuhas called for nationwide stimulus policies to help revive demand.
- Citigroup Inc., one of the biggest players in the $6.6 trillion a day currency market, is eliminating a dozen trading platforms in an attempt to cut costs. The firm conducted a review of 53 vendors, which resulted in 12 being removed, according to a statement on Monday. Citigroup scores firms it connects with through factors such as customer service, transparency and adherence to a global ethics code for the industry, it said. The move comes as banks struggle to maintain profit margins as the number of currency trading venues has mushroomed over the past decade, while the costs of maintaining expensive technology increase. Citigroup said last year it was combining its foreign-exchange and rates businesses into a single unit.
- Circuit breakers put a limit on a harrowing plunge in U.S. stock futures, but they’re also leaving traders in the dark as to how big losses may eventually get. Trading in other index price proxies suggested American stocks are at risk of the worst plunge since 2011. In the midst of financial-market spasms as the day began in Asia Monday, trading in the world’s most popular equity contracts went quiet when declines reached 5%, setting off Chicago Mercantile Exchange limits that keep prices from falling further.
- Saudi Arabia’s price war could wipe out the results of three years of OPEC+ production cuts in a single month. As the coronavirus slams oil consumption, there’s already a surplus of about 3.6 million barrels a day, the International Energy Agency said on Monday. If other members of the Organization of Petroleum Exporting Countries join Saudi Arabia’s threat to ramp up crude output to maximum capacity, and Russia follows suit, that oversupply could rise to more than 5 million barrels a day in the second quarter, according to Bloomberg calculations using IEA data.
- SoftBank Group Corp. fell by its most in more than seven years, after worsening sentiment around the coronavirus outbreak and the value of its global portfolio stung Masayoshi Son’s investment group. The shares fell 10% Monday, marking their biggest decline since October 2012 and wiping out gains since Paul Singer’s Elliott Management Corp.revealed a substantial stake in SoftBank. The subsequent rally didn’t last and shares embarked on their downswing after SoftBank reported a second quarter of losses related to investments in struggling startups from WeWork to Oyo Hotels. Now all the gains have been wiped out by an Asian sell-off triggered by uncertainty around the epidemic.
*All sources from Bloomberg unless otherwise specified