April 3rd, 2020
Daily Market Commentary
- Canadian equities jumped as a confluence of news sent oil and precious metals surging on Thursday. The S&P/TSX Composite Index closed 1.7% higher with energy companies leading the charge. U.S. President Donald Trump said Saudi Arabia and Russia would make major output cuts, though uncertainty swirled over the size of the curbs and whether reductions would be made at all. Western Canada Select crude oil traded at a $16 discount to West Texas Intermediate. Earlier Trump said in a couple of tweets that he expects Saudi Arabia and Russia to cut oil production by 10 million to 15 million barrels. His comments immediately triggered skepticism as the Kremlin said Russian President Vladimir Putin hadn’t agreed to a production cut to boost prices. Saudi Arabia also didn’t confirm the cuts, but called for an urgent meeting of the OPEC+ producer alliance.
- China’s foreign ministry denied a report that the country has resumed imports of canola from Canada’s two largest exporters. China, meanwhile, will be strict in implementing rules about foreign materials in canola cargoes, and it will not extend a MOU signed earlier, which allowed shipments with foreign materials exceeding 1%, said foreign ministry spokeswoman Hua Chunying at a press conference on Friday. A Canadian government official said this week that Canada and China were having positive discussions after the Asian nation blocked canola shipments from Viterra and Richardson International last year, and they were trying to find a path to normalize trade.
- European equities fell, led by insurers and energy shares, ahead of a U.S. jobs report that may shed light on the impact of the coronavirus outbreak on the world’s biggest economy. The Stoxx Europe 600 Index dropped 0.8% as of 10:10 a.m. London time. Dutch firms led insurers lower after the country’s central bank urged them to withhold dividends and buybacks. Oil stocks fell with crude as doubts crept in about U.S. President Donald Trump’s proposed supply-cut deal. Insurers and banks were also among the worst performers. European equities have seen a muted start to April following their worst quarter since 2002, as virus worries persist. Still, market swings have eased somewhat this week — the Stoxx 600 moved in its narrowest trading range in six weeks, and is on track for a weekly drop of 0.5%.
- U.S. equity futures dropped along with stocks on Friday as investors weighed the latest corporate and economic turmoil caused by the pandemic that has infected more than a million people worldwide. The dollar strengthened. Futures on the main U.S. equity benchmarks all slipped following Thursday’s gains and ahead of March payrolls data that are expected to decline for the first time since 2010.
- Asian equities saw modest losses in most markets to cap a third weekly decline in four. The yen weakened alongside the euro, pound and Swiss franc. Treasuries drifted. With lockdowns for many economies around the world expected to go on for longer, data are showing the severity of the impact. Nearly 10 million people in the U.S. have lost their jobs in the past two weeks, while the virus continues to pressure corporate balance sheets. American Airlines Group Inc. will slash international flying as far out as the end of August as the pandemic batters travel demand through the normally busy summer season.
- Oil jumped more than 11% in London as OPEC+ scheduled an urgent meeting next week to try and stem the crude market’s rout, with an output cut of 10 million barrels a day of global production being discussed. The coalition will hold a meeting of its members by video conference on Monday. It will be open to all producers — not just members of the Organization of Petroleum Exporting Countries or its allies — though it’s still not clear who will attend, according to delegates.
- Gold took a breather as investors awaited U.S. jobs data for further clues on how the coronavirus pandemic is hurting the world’s biggest economy. The metal traded little changed, after posting the biggest gain in a week on Thursday, as the dollar strengthened. One million people are infected across the world, and the U.S. has the most cases officially recorded globally, according to Johns Hopkins University. March payrolls due Friday are expected to decline for the first time since 2010, and the number of Americans applying for unemployment benefits hit a record last week, data showed yesterday.
- The euro-area economy is in a slump of unprecedented scale, and the contraction may deepen even further as lockdowns to contain the coronavirus are extended. IHS Markit said its monthly measure of services and manufacturing points to an annualized economic contraction of about 10%. With new business, confidence and employment all down, there is “worse inevitably to come in the near future,” it said.
- New York City Mayor Bill de Blasio said the U.S. is “not in a position” to deal with the hospital crisis that will unfold when new coronavirus cases surge. Spain reported the first decline in new coronavirus deaths in four days and Germany’s Angela Merkel ended her self quarantine. Europe needs continent-wide fiscal action and so-called coronabonds — jointly issued debt — would be one option to help tackle the financial fallout from the outbreak, European Central Bank policy maker Olli Rehn said on Friday. Europe needs bolder solutions than current proposals to counter the economic effect, Italian Prime Minister Giuseppe Conte wrote in a letter to daily la Repubblica.
- Boeing Co.’s beleaguered 737 Max program suffered a further blow as plane-leasing firm Avolon Holdings Ltd. canceled a deal for 75 jets worth $8 billion at list prices as the Covid-19 pandemic hits travel demand. Avolon, one of the top 20 customers for a model grounded for more than a year after two fatal crashes, will also defer delivery of 25 Boeing and Airbus SE narrow-bodies as it cuts the order book by 40%, it said in a statement Friday. The decision compounds the crisis surrounding the Max, whose return has been further clouded by the coronavirus outbreak. It comes a day after Boeing Chief Executive Officer Dave Calhoun offered an exit package to thousands of workers as the pandemic all but obliterates purchases of new planes.
- The OPEC+ coalition is pushing for other major oil producers to join it in a deep reduction of global crude output and stem the historic rout in prices, a move that sent futures sharply higher. A global cut of 10 million barrels a day is a realistic goal, according to a delegate, who spoke on condition of anonymity. The Organization of Petroleum Exporting Countries and allies, a group led by Saudi Arabia and Russia, has already scheduled a virtual meeting on Monday and wants other nations to join talks as soon as possible. The 10 million figure was first touted by President Donald Trump on Thursday, who called for a coordinated production cut. He gave no indication whether the U.S. would take part. For Saudi Arabia, it’s essential that producers including the Americans join in.
- In one fell swoop of regulatory relief, the Federal Reserve has put a massive distortion in the debt market on course to normalize after years of being turned upside down. At stake is a stubbornly illogical relationship between two of the world’s most important funding markets — the $17 trillion of U.S. Treasuries and the $124 trillion world of interest rate swaps — that’s persisted for more than a decade. Such swaps exchange fixed-rate payments for floating-rate ones, and are used by investors ranging from pension funds to insurers, as well as companies managing their future liabilities. But the relationship between swaps and Treasuries was turned upside down in the aftermath of the financial crisis, with so-called ‘swap spreads’ — what should be a premium of swap rates over Treasury yields, to reflect the credit risk involved in dealing with a private counterparty — turning negative.
- President Donald Trump attacked 3M Co. over unspecified problems with its production of protective masks on the same day that his administration issued an order under the Defense Production Act to speed production of ventilators and masks for coronavirus patients. The president said at a White House news conference he signed an “element of the act against 3M” that allows the Federal Emergency Management Agency to obtain as many N95 respirators as it needs from the company. Trump tweeted Thursday evening the company would “have a big price to pay” for its handling of the masks, without specifying the problem.
- The family business of U.S. President Donald Trump is in informal discussions with Deutsche Bank AG about delaying some loan payments as the coronavirus forces widespread disruptions to the economy, according to a person familiar with the matter. Trump Organization representatives reached out to the Deutsche Bank’s private banking unit in New York late last month and the talks are ongoing, according to the New York Times, which reported the negotiations earlier. Deutsche Bank is having similar discussions with other commercial real estate companies in the U.S., said another person, also asking not to be identified discussing private matters.
- Tesla Inc.’s early-year deliveries fell less than expected from record levels reached late last year, winning support from investors who pushed the shares 14% higher ahead of Friday’s open. Tesla handed over 88,400 vehicles worldwide in the first quarter, down 21% from the last three months of 2019. But the total beat analysts’ average estimate for about 78,100. The carmaker’s stock was priced at $516.21 in premarket trading, up from a close of $454.47 in New York.
- The number of coronavirus deaths in Italy, Spain, France and Germany surpassed 31,000, with all four countries on almost complete lockdown as leaders struggle to bring the outbreak under control. Deaths mounted across the four European nations, which between them have almost 60% of total fatalities and more than a third of the global tally of 1 million confirmed cases. The grim figures give governments little leeway to ease restrictions in a human and economic crisis that is straining continental unity. While new infections slowed in Italy and intensive-care admissions declined in France, officials said it’s still too early to relax restrictions that have brought wide swathes of Europe to a halt. France’s death toll rose sharply on Thursday after data from some nursing homes were included for the first time.
- Banco Santander SA freed up an extra 90 billion euros ($97 billion) to lend to businesses afflicted by the coronavirus crisis after the bank bowed to European Central Bank pressure and scrapped its dividend. “We need maximum flexibility so that we can do even more for the communities in the months ahead,” Chairman Ana Botin said at a virtual annual general meeting on Friday. “The board and I must consider, when making this kind of decision, not just the interests of shareholders, but also society in general.” Santander said on Thursday that it’s canceling dividend payments on 2019 earnings as the European Central Bank pressures lenders to conserve cash to help fight the widespread economic impact of the coronavirus. The bank will hold another AGM in October, when it may consider a payment to shareholders. BNP Paribas SA also announced Thursday that it will scrap its 2019 dividend.
- Japan is planning to distribute 300,000 yen ($2,768) to virus-hit households as part of its biggest-ever stimulus package, according to the ruling party. Prime Minister Shinzo Abe approved the value of the handouts ahead of the announcement of the package next week, said Fumio Kishida, policy head of the Liberal Democratic Party, after meeting Abe and Finance Minister Taro Aso on Friday. The details emerged three days after the party unveiled 60 trillion yen ($554 billion) worth of measures aimed at supporting households and businesses battered by the fallout from the coronavirus pandemic. Japan is following the U.S. in providing cash handouts in response to the pandemic to help people in need of a lifeline to pay the bills and to support spending.
- Singapore will shutter schools and most workplaces as the city-state unveiled a raft of stricter measures intended as a “circuit breaker” to slow the spread of coronavirus. Most workplaces, except for essential services and key economic sectors, will close starting on Tuesday, while the city-state will move to full home-based learning in its schools from Wednesday, Prime Minister Lee Hsien Loong said in an address to the nation Friday afternoon. The government will also unveil additional stimulus measures to boost the economy early next week.
- The People’s Bank of China cut the amount of cash that some banks have to put aside as reserves, injecting liquidity to encourage lending as the world’s second-largest economy is set for the slowest growth since 1976. The required reserve ratio for rural banks and small city commercial banks will be lowered 1 percentage point, the PBOC said on its website Friday. The move will release 400 billion yuan ($56 billion) of liquidity, the PBOC said, with half the cut taking effect on April 15 and the rest on May 15. A cut in the reserve ratio is a continuation of the PBOC’s relatively modest approach to easing, compared with some global counterparts who have pledged purchases of securities and direct lending to the private sector. Economic activity in China is almost certain to contract deeply in the first quarter as the government shut down the nation to try and stop the spread of the coronavirus.
- As the coronavirus pandemic wrecks economies, markets and fortunes, three founders of a company that makes ventilators have added a combined $7.3 billion to their wealth this year. Shenzhen Mindray Bio-Medical Electronics Co. shares have climbed 41%, fueled by a surge in demand for the life-saving devices. Covid-19, the disease caused by the virus, has flooded hospitals worldwide with patients struggling to breathe. Chairman Li Xiting, a Singapore citizen and the city-state’s richest man, has added $3.7 billion to his net worth this year and has a $12.7 billion fortune, according to the Bloomberg Billionaires Index. That puts him among the top five gainers in the world. Jeff Bezos — the world’s richest person — is up $3.4 billion, while Bill Gates is down $15.3 billion.
- The dollar advanced, looking to end a strong week with an extra flourish, after economic data from Europe gave investors insight into just how painful the impact of coronavirus may be. It gained against all of its Group-of-10 peers, climbing 0.6% according to Bloomberg’s spot index, putting the currency on course for a more than 2% advance this week. That’s quite a turnaround from last week, its worst since records began more than 15 years ago.
- President Donald Trump will meet with titans of the oil industry Friday who are battling among themselves over whether he should slap tariffs on Saudi crude to get the kingdom to reduce its output. It’s an idea championed by Oklahoma oil man Harold Hamm, a Trump confidant on energy who will be part of the meeting Friday, as well as some Republican senators who say tariffs could help the president win concessions from Saudi Arabia and stabilize the global crude market. Tariffs are also a weapon of choice for the president, who has wielded it against China, foreign steel producers and during trade negotiations with Mexico and Canada. Within the oil industry, the idea has exposed deep rifts, with refiners firmly opposed.
*All sources from Bloomberg unless otherwise specified