April 8th, 2020
Daily Market Commentary
- In the early days of Canada’s response to the coronavirus, before the crisis captured the full attention of Prime Minister Justin Trudeau’s government, it was still business as usual on at least one front: immigration. On March 12, the day before the Canadian parliament was suspended on concern about the spread of Covid-19, Trudeau’s immigration minister, Marco Mendicino, unveiled plans to hike immigration levels over the next three years. He cited a growing labor shortage. But as the nation’s economy plunges into recession, millions are being cast into unemployment. In the oil heartland of Alberta, a province that once had a voracious demand for skilled newcomers, Premier Jason Kenney now warns of a 25% jobless rate. Immigration targets will almost certainly be scaled back as the crisis forces a radical shift in Trudeau’s priorities.
- Ninepoint Partners LP is preparing to launch a new debt fund as early as June, aiming to tap into demand for investment products that offer yield and snap up bonds and loans made cheaper by the market sell-off. The Toronto-based asset manager has a goal to raise about C$500 million ($357 million) for a new liquid alternative mutual fund, adding to its C$6.5 billion in assets under management, senior portfolio manager Mark Wisniewski said. As investors grapple with violent market swings that started in February, sparked by fears over the coronavirus pandemic, Ninepoint says the new fund will keep leverage low, he said.
- Suncor Energy Inc.’s new 10-year bonds show its funding costs have spiked as the Canadian oil company suffers from a historic decline in crude prices. The integrated energy producer sold on Tuesday C$1.25 billion ($893 million) of notes maturing 2030, paying 420 basis points over similar Canada government securities. That compares with the 140-basis point spread it offered on C$750 million of 10-year debt last year. The price Suncor is paying to borrow is by far outpacing the increase in risk premiums broadly in the Canadian company bond market in the past month amid global credit volatility. As of Monday, investors were demanding 245 basis points over government securities to hold Canadian corporate debt, according to Bloomberg Barclays indexes. That compares with 118 basis points buyers required when Suncor last tapped the market in May. The company’s new notes were priced to yield 5.039%, compared with 3.128% in the previous deal.
- Prime Minister Justin Trudeau’s plan to subsidize wages by 75% provided a slight boost to small business confidence, but the proportion of firms expecting to cut staff still climbed to a record, according to the Canadian Federation of Independent Business. The CFIB’s business barometer index rose to 37.7 at the beginning of April, according to a flash poll of 1,602 firms, up from an all-time low 30.8 in March. The uptick in confidence follows the federal government’s introduction of a C$71 billion ($51 billion) program to provide pay relief to Canadian employers as an incentive to keep workers on the payroll.
- European stocks fell from a one-month high after finance chiefs in the region failed to agree on an economic recovery plan, while data pointed to a grim outlook for some of its largest economies. The Stoxx Europe 600 Index dropped 1.3% as of 9:49 a.m. in London, receding from the bull market territory it had flirted with on Tuesday. Almost all industry groups declined except real estate shares. Cyclicals led losses, including banks, miners and energy shares. European stocks had rebounded from a March low through Tuesday, boosted by stimulus measures and optimism that the virus outbreak is stabilizing in parts of Europe. Germany’s DAX Index on Tuesday exited its shortest bear market on record, before fresh declines followed the next day.
- U.S. stock futures trimmed gains as traders continued weighing the long-term economic impact of measures taken to slow the coronavirus pandemic, suggesting bull market thoughts may be kept on hold. Contracts on the S&P 500 trimmed gains of as much 1.5% to trade 0.4% higher at 8:45 a.m. in London. The underlying gauge finished lower Tuesday and 19% above its March 23 close. It briefly popped above the 20% threshold that would demarcate the technical start of a bull market, based on a time-honored definition.
- Japan’s Topix index rose for a third day as investors hunted for bargains on hopes that the local market has bottomed amid coronavirus concern. The benchmark gauge rose as much as 2%, erasing a morning loss of as much as 0.7%. The Nikkei 225 Stock Average also rebounded from an earlier decline, to close above 19,000. Trading volumes Wednesday were about 20% below the 30-day average. The Topix is up by more than 15% from its March low, while the Nikkei 225 has risen almost 17% from its recent trough.
- Oil rose as investors weighed whether output cuts being discussed by the world’s top producers will be enough to offset the demand destruction wrought by the coronavirus. Futures in New York climbed around 3% toward $25 a barrel. Saudi Arabia and Russia are hammering out an agreement that a delegate said will reduce global output by about 10 million barrels a day. That compares with OPEC’s estimate for demand to fall by 11.9 million barrels a day this quarter. Meanwhile, India — the world’s third biggest oil consumer — is set to snap up millions of barrels of Middle East crude for its strategic reserves to take advantage of low prices, according to officials with knowledge of the matter.
- Gold steadied after choppy trade on Tuesday, with investors looking for shelter amid mixed messages from policy makers on more stimulus measures. European Union finance ministers failed to agree on a strategy to mitigate the economic impact of the coronavirus pandemic, sending sentiment in Europe tumbling and aiding some safe havens and the dollar.
- Italy is advancing plans to gradually lift restrictions to contain the coronavirus as Europe’s exit from stringent lockdown measures takes shape. Amid tense discussions weighing political and economic pressures against public-health concerns, Prime Minister Giuseppe Conte’s government is hammering out an approach that foresees the full return to normal life taking months, according to people directly involved in the talks. In the original epicenter of the outbreak on the continent, schools will likely remain closed until September, with every step to ease restrictions dependent on the spread of the deadly disease remaining under control, said the people, who asked not to be identified because the discussions are confidential.
- Germany’s economy will shrink this quarter at more than twice the pace recorded at the height of the financial crisis, leading research institutes forecast, adding to evidence of the heft of the blow to European economies due to the coronavirus pandemic. German output is expected to slump 9.8% in the April-June period, the most since records for quarterly data began in 1970, and is on course for a 4.2% contraction this year, five of the country’s top institutes said in twice-yearly projections. Thanks to fiscal aid, the economists expect a strong rebound next year, with expansion of 5.8%.
- Spain said fatalities and new cases rose to the highest in four days, infections in Germany increased by the most in three days and Belgium had its deadliest day of the outbreak so far. U.K. Prime Minister Boris Johnson’s condition remains stable and he is not on a ventilator. Hong Kong announced a fresh stimulus package valued at about $18 billion, while European Union finance ministers failed to agree on a $543 billion recovery plan for the bloc. Britain, U.S. and Italy may see deaths exceed 5,000 in the coming week, according to a forecast by Imperial College London. Earlier, China relaxed its lockdown of Wuhan, the city where the pandemic began. Italy’s discussions to gradually lift restrictions are advancing, as Europe’s exit from stringent lockdown measures takes shape, but the World Health Organization cautioned countries against lowering their guards.
- President Donald Trump said he’s considering putting a “hold” on U.S. funding for the World Health Organization after the agency “blew it” by failing to sound the alarm sooner about the coronavirus. “I’m not saying I’m going to do it, but we’re going to look at it,” the president said Tuesday at a White House briefing on the coronavirus. Congress allocated about $123 million to the WHO in 2020. Earlier in the briefing Trump called the Geneva-based international body “very China centric.” He also said the WHO was wrong to advise against travel restrictions he imposed on China.
- Russia cast doubt on the proposed U.S. contribution to a global deal to reduce oil production, potentially throwing a spanner into delicate negotiations the day before a virtual OPEC+ meeting. The world’s largest oil producers will meet on Thursday and Friday in an effort to staunch the flood of crude that’s hammering prices and threatening the stability of companies and countries. Saudi Arabia, Russia and their OPEC allies are discussing deliberate production cuts to offset the impact of the coronavirus pandemic, but so far the U.S. is only offering an output decline driven by market forces. With just over 24 hours left before the Organization of Petroleum Exporting Countries hold crucial talks, many issues remained unresolved, said people familiar with the negotiations. The role of the U.S. in any deal had become a clear sticking point for Moscow.
- A gauge of loan applications to purchase homes in the U.S. declined last week to the lowest since October 2015, a fourth straight decline that underscores the growing economic fallout from the coronavirus pandemic. The Mortgage Bankers Association’s purchase index slumped 12.2% in the period ended April 3 after tumbling 25.7%, data from the Washington-based group showed Wednesday. Over the past four weeks, the gauge has declined nearly 95 points, the sharpest monthly drop since mid-2010.
- Zoom Video Communications Inc. was accused by a shareholder of hiding flaws in its video-conferencing app, part of a growing backlash against security loopholes that were laid bare after an explosion in worldwide usage. In a complaint filed Tuesday in San Francisco federal court, the company and its top officers were accused of concealing the truth about shortcomings in the app’s software encryption, including its alleged vulnerability to hackers, as well as the unauthorized disclosure of personal information to third parties including Facebook Inc.
- Workers at large employers in the two most populous San Francisco Bay Area cities would get two weeks’ paid sick leave under proposals that passed in one city and was up for a vote in the other. Emergency ordinances that passed in San Francisco and San Jose on Tuesday would temporarily extend two weeks’ paid sick leave to workers not yet covered under the federal Families First Coronavirus Response Act (Public Law 116-136), signed March 18, that requires employees get paid sick leave for health reasons related to Covid-19. Private employers with 500 or more workers would be required to provide public health emergency leave.
- India plans to defer some taxes and offer incentives to support small businesses reeling from the three-week lockdown to curb the spread of coronavirus, people familiar with the matter said. The plan also includes releasing dues owed by the government to businesses across critically-affected sectors such as tourism and hospitality as well as small industries, the people said, asking not to be identified as the discussions are private. The package will be bigger than a $22.6 billion support announced last month, they said.
- India, the world’s third biggest oil consumer, is set to snap up millions of barrels of Middle East crude for its strategic reserves, signaling its support for global efforts to rescue the energy market. The purchases are aimed at taking advantage of low prices, according to officials with knowledge of the matter. But two of them said they’re also a signal of solidarity for the campaign to stabilize markets after Oil Minister Dharmendra Pradhan spoke with his U.S. and Saudi Arabian counterparts and the head of the International Energy Agency. While India’s storage capacity is relatively small, the purchases are an important sign that major consuming countries are trying to play their part in rebalancing a market that’s been pummeled by the coronavirus. China said earlier this month it would start buying up oil for its emergency reserves.
- Hong Kong’s Airport Authority is in talks with banks for a HK$20 billion ($2.6 billion) loan to help fund the city’s third runway, according to people familiar with the matter. The five-year facility, which is also meant for general corporate purposes, offers an interest margin of 72 basis points over the Hong Kong interbank offered rate and a top-level all-in of 82 basis points, said the people who are not authorized to speak publicly and asked not to be identified. The Airport Authority could not immediately respond to a request for comment when reached by telephone and email. The borrower has a HK$5 billion five-year revolver due December, data compiled by Bloomberg show.
- The global economy is slipping into a “different era” as the devastation in industries from oil to services roils markets, hedge fund manager Crispin Odey cautioned his investors. “This is not like 2008-9, nor 2001-2, nor even 1989-92,” Odey wrote in a letter to clients seen by Bloomberg. “The fall in global gross national product for this year will echo 1931-2. That was a terrible time when countries and institutions disappeared and characters like Adolf Hitler seized their chance to take over Germany.” The warning follows a 21% gain in his flagship Odey European Inc. fund in March, the biggest monthly increase in 11 years, according to the letter. Odey, known for his bearish views, is recovering from sharp losses over the past five years as bets that markets would fall misfired.
- Volkswagen AG is considering whether to pay out a record 3.3 billion-euro ($3.6 billion) dividend as planned, or use at least part of it to shore up its finances for what is shaping up to be the biggest economic crisis since World War II. Investors are entitled to the dividend and would be disappointed if it was delayed, cut or suspended, Chief Financial Officer Frank Witter said in an video message to staff seen by Bloomberg. Global companies from Boeing Co. to HSBC Holdings Plc have slashed or postponed payouts since the coronavius pandemic began wreaking havoc across continents and economies. More than $56 billion of dividends have been scrapped by businesses in Western Europe and North America, according to datacompiled by Bloomberg. In Western Europe another $40 billion has been temporarily postponed.
- Investments in U.S.-listed fixed income exchange traded funds declined 74% last week for the second week of inflows. Government bond ETFs led the inflows. Corporate bond ETFs had the biggest change from the previous week. Net inflows to ETFs totaled $1.03b in the week ended April 7, including the effect of leveraged funds, compared with $3.95b the prior week
- Foxconn, the company responsible for assembling most of the world’s Apple Inc. iPhones, will aid the fight against the coronavirus pandemic by developing and making ventilators in the U.S. The Wisconsin plant owned by Foxconn, also known as Hon Hai Precision Industry Co., will be used to manufacture ventilators, Medtronic Plc Chief Executive Officer Omar Ishrak told CNBC. Foxconn confirmed the partnership in a statement on Wednesday but did not say when it will start making the medical equipment. Evelyn Tsai, spokesperson for founder Terry Gou, said production would take place in Wisconsin and Taiwan.
*All sources from Bloomberg unless otherwise specified