April 7th, 2020

Daily Market Commentary

Canadian Headlines

• As quickly as the Canadian stock market fell into a bear market, it has even more rapidly surged 21% from its bottom. Yet, few are willing to call the rally by its technical definition — a bull market. In 10 trading days, the S&P/TSX Composite Index jumped from its March 23 low to enter the bull zone, its quickest rebound since the index was created in 1977, according to data compiled by Bloomberg. It took 14 days to plunge into a bear market as the Covid-19 pandemic escalated through February and March.
• Prime Minister Justin Trudeau has staked much of Canada’s virus response on a plan to subsidize wages by 75%. Many businesses say it isn’t going to work for them. Trudeau’s government announced the subsidy plan on March 27 in an effort to stem a huge wave of layoffs. At C$71 billion ($50 billion), the program represents more than one-quarter of the government’s emergency fiscal plan to date. But the money will take six weeks to roll out, a long time for companies running low on cash. Businesses also need to show they’ve suffered at least a 30% drop in revenue. That hurdle has been criticized by the tech industry for disqualifying startups and by small businesses that fear they can’t prove the decline.
• Global Infrastructure Partners and Brookfield Asset Management Inc. are among investors in talks to jointly bid for a stake in Abu Dhabi National Oil Co.’s natural gas pipelines, which could be valued at about $15 billion, people with knowledge of the matter said. Italian infrastructure operator Snam SpA, Ontario Teachers Pension Plan, Singapore sovereign fund GIC Pte and a Korean firm are in discussions to join the same consortium, which has been pursuing as much as a 49% stake in the assets, the people said. The group is the only remaining bidder for the stake — which could rank as one of this year’s largest infrastructure deals globally — after other parties including Australian fund manager IFM Investors Pty dropped out, the people said. A final deal will depend on whether the consortium can secure financing, which has become more difficult to obtain due to tightening credit markets and the decline in oil, they said.

World Headlines

• For euro-area stocks, this could be the shortest bear market on record. Major equity benchmarks from Italy to Germany advanced on Tuesday, taking their gains from last month’s low to 20% or more. The Euro Stoxx 50 Index too has advanced similarly. A close at these levels would technically mark the beginning of a bull market, even if it’s one that sees euro-area shares 25% off this year’s highs. Traders are turning more optimistic this week as the number of coronavirus infections have slowed in several European countries, while others such as Denmark and Austria are relaxing lockdown measures.
• U.S. equity futures rallied alongside stocks in Europe and Asia on Tuesday amid continuing optimism the spread of the coronavirus may be slowing in several major economies. Bonds extended declines and the dollar weakened. Contracts for the three main American benchmarks all jumped after the S&P 500 Index on Monday closed at its highest since March 13. If the moves translate to the underlying gauges then the S&P 500 will end the day back in a bull market, and likely take the MSCI All-Country World Index with it.
• Japanese shares advanced as worries over the global coronavirus outbreak eased and the government laid out plans for record economic stimulus. Electronics makers provided the biggest boost to the Topix index as all industry groups advanced. Prime Minister Shinzo Abe said he’ll propose a state of emergency in seven prefectures to stop the spread of the virus in Japan and announced a 108 trillion yen ($990 billion) stimulus package. China reported no new virus deaths for the first time since the pandemic emerged, and confirmed new infections declined in Italy, France, Germany and Spain. The S&P 500 jumped 7% Monday to the highest since March 13.
• Oil resumed gains on signs that the world’s biggest producers are moving toward a deal to end their price war and cut output as the coronavirus eviscerates energy demand. Futures in New York rose 3.6% to trade near $27 a barrel. Saudi Arabia and Russia are closing in on an output deal, according to people familiar with the matter. They plan talks with other OPEC+ countries on Thursday before a G-20 meeting of energy ministers Friday. In the U.S., President Donald Trump’s top energy official said he had a productive discussion with his Saudi counterpart.
• Gold futures surged above $1,700 an ounce to the highest since 2012, pushing out the spread over spot prices, as investors weighed the economic fallout from the pandemic and the prospect of more stimulus. The precious metal is in demand, with JPMorgan Chase & Co.’s Jamie Dimon saying the disease will lead to a major downturn. Its jump came even as risk assets including equities posted gains on signs the outbreak is leveling off.
• Exxon Mobil Corp. is slashing spending to a four-year low and delaying major projects as the oil titan reverses course on a massive investment drive to keep its financial footing during the worst oil-price rout in decades. Exxon will reduce this year’s spending by 30% to $23 billion, the Irving, Texas-based company said in a statement on Tuesday. It will be the second-largest budget cut in the company’s modern history, overshadowed only by 2016, when crude markets last collapsed. The largest share of the reductions will occur in the Permian Basin of West Texas and New Mexico, where Exxon will cut back on drilling and fracking, according to the statement. The company also is delaying a formal investment decision on a massive liquefied natural gas project in Mozambique and some work on oil discoveries off the coast of Guyana.
• Spain reported an increase in fatalities, while the outbreak showed signs of slowing elsewhere in Europe and countries including Italy began to consider easing lockdowns. There has been no change in U.K. Prime Minister Boris Johnson’s condition after he was moved to an intensive-care unit. China said it didn’t have any new deaths for the first time since the pandemic emerged, while New York Governor Andrew Cuomo said the fatality rate was effectively flat for two days. Stocks rose globally, with benchmark indexes from Italy to France and Germany on course to exit a bear market.
• State-owned China Three Gorges Renewables Group Co. is seeking to raise 25 billion yuan ($3.5 billion) in what could be one of the country’s biggest initial public offerings this year. The company plans to sell as many as 8.57 billion shares in Shanghai, according to a prospectus posted on the website of the China Securities Regulatory Commission. The assets to be listed are mainly domestic solar and wind farms, as well as small hydro power plants, with a total capacity of almost 10 gigawatts. If trading started this year, the IPO would be the second-biggest in China during 2020, after Beijing-Shanghai High Speed Railway Co. raised $4.3 billion in a January debut, according to data compiled by Bloomberg.
• Sentiment among U.S. small businesses collapsed in March by the most on record and owners’ outlooks deteriorated swiftly amid the economic disruptions caused by the global health crisis. The National Federation of Independent Business optimism index slumped 8.1 points to 96.4, the group said in a report issued Tuesday, the biggest drop in monthly surveys going back to 1986. The group’s measure of business conditions six months from now declined 17 points, the most since November 2012, to 5. Nine of the 10 components that make up the optimism gauge declined in March. Pessimism reflected the largest-ever decrease in sales expectations. The NFIB’s uncertainty index increased to a three-year high.
• President Donald Trump eased restrictions on exports of masks and other protective equipment needed to fight the Covid-19 pandemic just days after their introduction as he confronted a backlash from allies around the world. Faced with domestic criticism of his administration’s handling of the Covid-19 crisis and cries of shortages from hospitals on the front lines, Trump late Friday had imposed a ban on exports of N95 masks, surgical gloves and other protective equipment.
• Italy and Norway are beginning to look at easing their lockdowns after Denmark and Austria became the first two European countries to loosen restrictions as governments seek to gradually revive economies crippled by the containment measures without risking a second wave of infection. Italy, the original epicenter of the outbreak on the continent, has begun to planfor emerging from the lockdown as new deaths and cases flatten out. Selected firms could open in mid-April, according to an official familiar with the discussions. Norway may also move to ease restrictions, with a press briefing scheduled later on Tuesday.
• It’s crunch time for the European Union as it strives to overcome internal differences and agree to a plan that would stem a virus-led downturn, which may eclipse the severity of the Great Recession more than a decade ago. The EU’s finance ministers on Tuesday will seek to endorse a list of measures worth more than half a trillion euros to mitigate the impact of the coronavirus on the region’s economies. If enough headway is made, the bloc’s leaders could debate and sign-off on the measures later in the week. With the euro area facing an economic slump of unprecedented scale, countries have instituted fiscal measures worth 3% of EU gross domestic product as well as liquidity guarantees worth 18% of the bloc’s output. The European Central Bank has also launched massive bond purchases in what could end up becoming the biggest economic rescue package the continent has seen in peacetime.
• The world’s largest oil producers are hammering out the terms of an unprecedented deal to mitigate the devastating impact of the coronavirus crisis as they prepare for an extraordinary meeting this week. Saudi Arabia and Russia are closing in on an agreement to curb output, which could drain some of the oil surplus threatening to overwhelm storage tanks and force a wave of abrupt production shutdowns, according to delegates involved in the talks. The two energy giants, together with others in the OPEC+ alliance, will hold a virtual meeting on Thursday to finalize the accord. A deal still hinges on some form of co-operation with the U.S. That may be difficult to achieve with President Donald Trump resisting any partnership with the OPEC cartel that he’s vilified for years. But the group is holding out hopefor some kind of American involvement, and buy-in by others such as Canada and Brazil, at a gathering of Group of 20 oil ministers scheduled for Friday.
• Japan on Tuesday announced a record 108.2 trillion yen ($994 billion) stimulus package to shield the economy from the coronavirus’ widening fallout as Prime Minister Shinzo Abe declares a state of emergency. The package’s size, with a headline figure equivalent to 20% of the nation’s annual economic output, highlights the magnitude of the damage that policy makers are bracing for. Abe earlier Tuesday evening declared a state of emergency for Tokyo, Osaka and five other prefectures, empowering local authorities to urge people to stay at home in major cities that generate about half of Japan’s economic output.
• Indonesia’s central bank said the New York Federal Reserve will provide it with a $60 billion repurchase facility to help with liquidity needs amid a dollar shortage triggered by the coronavirus outbreak. Bank Indonesia has no plan yet to use the facility, Governor Perry Warjiyo told investors on a conference call on Tuesday. The agreement on the credit line was a vote of confidence in the domestic economy, he said. The rupiah has been the hardest hit in Asia this year, dropping more than 14% against the dollar, as investors pulled money out of emerging markets and fled to the safe-haven greenback, triggering liquidity shortages. Bank Indonesia has taken aggressive steps to stem the fallout, draining $9.43 billion from its foreign reserves last month, according to figures released earlier Tuesday.
• FTI Consulting Inc., the U.S.-based corporate advisory firm, is considering an acquisition of boutique consultancy Delta Partners to expand its offerings for telecommunications and technology clients, people with knowledge of the matter said. FTI has been holding discussions about a combination with Delta since before the coronavirus pandemic roiled global markets, the people said. Dubai-based Delta would prefer a deal allowing its current management to retain control over strategic decision making, one of the people said, asking not to be identified because the information is private.
• Europe’s companies are positioning themselves to restart mergers and initial public offerings later this year after the coronavirus crisis eases, according to dealmakers at UBS Group AG. While sellers are mostly postponing new deals, some companies are using the time to prepare for auctions this summer, Nestor Paz-Galindo, EMEA head of M&A at Switzerland’s largest bank said on a call. Deals that have been in the pipeline for the last six to nine months are still happening, he said. A decade-long boom in mergers and acquisitions ground to a halt in March as the pandemic sent stocks reeling and shut debt markets. Still, bond market issuance and transaction levels are at record levels in some cases, as some of the biggest corporate issuers like Nestle SA and Royal Dutch Shell Plc bring liquidity to the market, European debt head Barry Donlon said.
• Two key bank regulators are holding off on easing Wall Street debt limits in response to the coronavirus pandemic, leaving billions of dollars locked up at banking subsidiaries that could be used for lending amid the deepening economic crisis. For now, the Federal Reserve is the only U.S. banking watchdog that’s relaxed a landmark leverage rule that stipulates how much capital banks must hold against their assets. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., which also enforce the rule, have privately indicated they aren’t yet ready to follow its lead, said three people familiar with the matter.
• America needed hospital gowns, so Donald Trump called up Walmart. For ventilators, he turned to Detroit’s automakers. Wolfgang Puck counseled him on restaurant aid, while a pillow magnate jumped in to help with a mask shortage. For weeks, the president minimized the threat of the coronavirus, telling the nation it was contained or would soon disappear. But now that the outbreak is sweeping the country, Trump has been forced to constantly overhaul and retool his team and its ad hoc plan to fight it. He’s trotted out executives and privately called friends and celebrities for insights. He’s lauded some companies, like Ford Motor Co. and Apple Inc., and threatened others, like 3M Co. and General Motors Corp — before praising both. Vice President Mike Pence, Trump’s son-in-law Jared Kushner and Health Secretary Alex Azar all hold murkily defined leadership roles on Trump’s coronavirus task force, with the president routinely overstepping them all.

*All sources from Bloomberg unless otherwise specified