April 6th, 2020

Daily Market Commentary

Canadian Headlines

  • Economists agree Canada’s labor market suffered major damage in March, but the range of forecasts varies wildly. Royal Bank of Canada sees 1 million lost jobs last month and Citigroup Inc. predicts 1.1 million after the coronavirus forced companies nationwide to cut staff. At the other end of the spectrum, 4CAST projects a net loss of 100,000, and JPMorgan Chase & Co. puts it at 175,000. Such disparity may reflect just how quickly the virus has overwhelmed Canada’s economy. Prime Minister Justin Trudeau’s government has rolled out massive fiscal support to encourage employers to keep workers on payrolls, but it’s unclear how effective those programs will be.

World Headlines

  • European equities gained the most in nearly two weeks on optimism that coronavirus death tolls are falling in several hotspots of the health crisis. The Stoxx Europe 600 Index was up 3% at 10:02 a.m. CET, led by automakers, travel and leisure and insurance sectors, while shares in defensive industries such as health care, utilities and telecoms underperformed. The benchmark index is still down 27% since Feb. 19. Fatalities in the state of New York fell for the first time, while Italy had the fewest deaths in more than two weeks, France reported the lowest number in five days and Spain’s tally fell for a third straight day. However, U.S. President Donald Trump warned that a “very horrendous” phase in the pandemic is approaching and companies are reducing their guidance and suspending dividends because of the economic damage from the virus.
  • U.S. equity futures jumped alongside stocks in Europe and Asia after the reported death tolls in some of the world’s coronavirus hot spots showed signs of easing over the weekend. The dollar was steady and Treasuries fell. Contracts on all three main American gauges rallied after New York state fatalities fell for the first time and President Donald Trump said he sees signs the pandemic is beginning to level off.
  • In Asia, Japan’s benchmark ended almost 4% higher even as that country moved closer to declaring a state of emergency. The yen dropped as haven demand receded. Shares in Hong Kong rose while Shanghai was closed for a holiday. Telecommunications providers were the biggest boost to the Topix index advance. Italy had its fewest deaths in more than two weeks, while New York State fatalities fell for the first time. U.S. President Donald Trump and Vice President Mike Pence said they see signs the U.S. outbreak is beginning to level off.
  • Oil pared losses amid signs that Saudi Arabia and Russia are making progress toward an agreement to curb crude output as the coronavirus wreaks havoc on the global economy. Futures fell 3.3% in New York, having earlier plunged 11%. Large oil-producing nations are racing to negotiate a deal to stem the price crash, but hurdles remain. A meeting of OPEC+ and others — already delayed once — is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but President Donald Trump has so far shown little willingness to do so.
  • Gold climbed to a one-week high, rising along with risk assets, even as concerns eased over a supply squeeze and President Donald Trump said the coronavirus outbreak may be stabilizing. Trump and Vice President Mike Pence said late on Sunday that they see some signs the U.S. outbreak is beginning to level off. Some of the world’s coronavirus hot spots have also reported lower death tolls. Three major processors in the Swiss canton of Ticino, Europe’s biggest gold-refining hub, are re-opening at a limited rate after being shut for almost two weeks. Still, with the premiums for gold futures over spot prices remaining elevated, the market turmoil looks far from over.
  • Germany and Spain reported lower numbers of new cases, a tentative sign that lockdown measures are easing the outbreak. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he expects the fallout to include a major economic downturn and stress similar to the crisis that almost brought down the U.S. financial system in 2008. Japanese Prime Minister Shinzo Abe said he’ll propose a state of emergency in prefectures including Tokyo and Osaka for about a month, after a renewed surge in coronavirus infections. U.K. Prime Minister Boris Johnson was hospitalized as a precaution, after struggling to recover from the infection he contracted.
  • Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the seventh 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 $476.9 million in the week ended April 3, compared with losses of $1.2 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $8.39 billion.
  • HSBC Holdings Plc’s dividend suspension threatens to cost the lender some of its core investor appeal in Hong Kong. Payouts have been an important reason to own HSBC shares in the city. Its stock price has lagged the Hang Seng Index by more than 600 percentage points since 1986, the earliest available Bloomberg-compiled data from when a unified Hong Kong exchange commenced. But including dividends, HSBC’s total return is more than double the Hong Kong benchmark’s in the period. Shareholders have started mobilizing. A group on Facebook Inc., called the HSBC Shareholders Alliance was recently established to call for legal action against the halted payouts. The group has contacted more than 3,000, or about 2%, of the lender’s shareholders and is demanding a scrip dividend in place of the canceled cash distribution, it said Monday afternoon. A scrip gives investors the option to receive dividends in the form of equity.
  • Saudi Arabia, Russia and other large oil producers are racing to negotiate a deal to stem the historic price crash as diplomats said some progress was made on Sunday. The talks still face significant obstacles: a meeting of producers from OPEC+ and beyond — delayed once — is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but U.S. President Donald Trump has so far shown little willingness to do so. Oil diplomats are trying to stitch together a meeting of G-20 energy ministers for Friday, part of an effort to bring the U.S. on board, according to two people familiar with the situation. Even the International Energy Agency, which represents industrialized energy-consuming nations, is calling for action.
  • Hungary’s government unveiled a stimulus plan worth as much as a fifth of the nation’s economy to help counter the fallout of the coronavirus pandemic. The package, which includes planned stimulus from the central bank, will pay some private-sector wages, offer loan guarantees, subsidize investments and boost pensions. It resembles similar efforts by governments across Europe to shield workers and companies from the damage they’re suffering from virus-triggered lockdown measures.
  • Singapore increased its cash payout to individuals and announced additional steps to save jobs as the city-state prepares to severely curtail activities to contain a spike in coronavirus cases. The third virus-related stimulus package in two months will cost S$5.1 billion ($3.6 billion), taking the nation’s total virus relief to almost S$60 billion, or 12% of gross domestic product, Deputy Prime Minister Heng Swee Keat said Monday in Parliament. The government will seek to draw an extra S$4 billion from past reserves, and will push up its budget deficit in the current fiscal year to 8.9% of GDP, he said.
  • Prime Minister Shinzo Abe announced a 108 trillion yen ($989 billion) stimulus package, Japan’s largest ever, to rescue the coronavirus-hit economy with Tokyo and six other economic hubs set to be put in a state of emergency. The package, equivalent to about 20% of the nation’s economic output, will include cash handouts worth 6 trillion yen for households and small businesses hit by the virus and offers businesses deferrals on tax and social service costs worth 26 trillion yen, Abe said Monday.
  • The deadly coronavirus may infect as many as 95,000 people in Indonesia by next month before easing, a minister said, as authorities ordered people to wear face masks to contain the pandemic. The dire forecast, which came as the country reported its biggest daily spike in confirmed cases, is based on a projection by the nation’s intelligence agency, University of Indonesia and Bandung Institute of Technology, Finance Minister Sri Mulyani Indrawati told lawmakers in Jakarta. The estimate was discussed at a cabinet meeting held by President Joko Widodo earlier on Monday, she said.
  • Germany’s Vice Chancellor Olaf Scholz has said the shared experience of battling the coronavirus could lead to a “new age of solidarity.” There’s little sign of the crisis bringing nations closer together, though: From India to Europe and the U.S., governments are rushing to get hold of masks, ventilators, gloves and medicines in a free-for-all that’s stoking tensions in a world already stung by globalization. Countries are rushing to introduce export restrictions, contributing to what the World Trade Organization calls a “severe shortage” of goods needed to fight the virus.
  • Commodities face a key week, with investors weighing signs the pandemic may be leveling off and tracking the standoff in oil markets between Riyadh, Moscow and Washington. President Donald Trump and deputy Mike Pence said they see signs the outbreak is stabilizing, while Europe’s worst-hit states posted fewer deaths. Copper rose and oil pared a steep drop. Among the highlights, OPEC+ is tentatively scheduled to hold a virtual meeting on Thursday to stem the historic rout; LNG traders will see whether prices in Asia break below a critical threshold; and mining giant Rio Tinto Group is being forced to hold a dial-in AGM. In crops, key staple rice has stormed to a multi-year high as global demand spikes, and may extend its rally this week.
  • Tesla Inc. engineers showed footage of a prototype ventilator the company is trying to make with auto parts amid a shortage of the machines for coronavirus patients. According to the video on Tesla’s YouTube channel, the design includes a touch screen, computer and control system from a Model 3 electric car. Tesla is taking advantage of components that are familiar, reliable and available, an engineer says in the video.
  • Jamie Dimon expects fallout from the coronavirus pandemic to include a major economic downturn and stress similar to the crisis that nearly brought down the U.S. financial system in 2008. “At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008,” the chief executive officer of JPMorgan Chase & Co. said Monday in his annual letter to shareholders. “Our bank cannot be immune to the effects of this kind of stress.” he 23-page letter was his shortest since March 2008, and came less than a weekafter Dimon told staff he’d returned to work after undergoing emergency heart surgery. It was his first public commentary about the coronavirus’s impact since the bank’s investor day on Feb. 25. At the time, the virus still seemed a distant threat, with fewer than 60 cases in the U.S. and none in New York.
  • Prime Minister Boris Johnson was taken to the hospital for tests as he struggles to recover from coronavirus, dealing a serious blow to the U.K. as the country prepares for the worst of the crisis. Almost 5,000 people have died from Covid-19 in the U.K. so far and, according to government advisers and scientists, the peak of the outbreak is likely to hit in the next 7-10 days. On Sunday night, Queen Elizabeth II made a rare televised address to the nation, appealing for unity and invoking the spirit of wartime sacrifice to defeat the pandemic.
  • The biggest U.S. banks have to recognize potential loan losses more quickly under accounting rules that took effect in January, a shift that means share buybacks are unlikely for at least the rest of 2020. As the economy buckles under the weight of the coronavirus pandemic and more borrowers struggle to make payments, top lenders may have to set aside as much as $164 billion in loss provisions this year, according to analysts’ estimates. That would wipe out profits, though trading revenue is expected to rise because of market volatility. Regulators are trying to cushion the blow. In this year’s industry stress tests, which help set capital levels for the largest firms, the Federal Reserve won’t take into account the new accounting rule, known as CECL. But the banks themselves, which start reporting first-quarter earnings on April 14, will base their results on it, meaning they’ll have to be more conservative in capital planning, company executives and industry analysts say.

*All sources from Bloomberg unless otherwise specified