April 16th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian equities fell Wednesday as a risk-off mood took hold while investors scoured the latest economic data and corporate earnings. The Bank of Canada is broadening the range of assets it will purchase in a bid to support an economy that could be heading for a deeper recession than previously expected. The S&P/TSX Composite Index retreated 2%, with consumer staples being the only sector to advance Wednesday. Canada’s gross domestic product declined by 2.6% in the three months ended in March compared with the previous quarter, according to preliminary estimates released Wednesday by Statistics Canada. The numbers, which aren’t annualized, are much worse than many economists had been forecasting.
• Cirque du Soleil Entertainment Group is in talks with its private equity backer TPG regarding a loan after the coronavirus pandemic forced it to close shows globally, bringing the famed live performance brand to its knees. The Montreal-based company is discussing a $50 million loan secured by Canadian intellectual-property assets, according to people familiar with the matter. The borrowing would give the company time to explore options including potential government assistance, the people said, asking not to be identified because the matter is private.
• The Kearl oil sands mine operated by Exxon Mobil Corp.’s Imperial Oil Ltd. has become the site of a coronavirus outbreak that threatens to disrupt Canadian crude production. Three confirmed cases have been identified and six people are in isolation at the remote operation in Northern Alberta, Dr. Deena Hinshaw, chief medical officer of health for the Canadian province, said in a press conference Wednesday. One employee tested positive at the site and has been isolated in the work camp, a company spokesman said by email. A small number of additional employees have also tested positive over the past few weeks while away from the site, and they’ve also isolated themselves.

World Headlines

• European stocks resumed gains on Thursday, led by travel and tech shares, as investors focused on earnings reports for clues on the corporate impact of the novel coronavirus. The Stoxx 600 Index was up 0.9% as of 8:11 a.m. London time. Travel-and-leisure shares led the advance as EasyJet Plc jumped 7.4% after securing new loans and saying it plans to sell jets to weather the fallout from the pandemic. While European stocks climbed to a one-month high earlier this week, they have still only recouped about a third of the losses seen in the rout since a Feb. 19 high. Still, slowing rates of new infections in some countries and signs of the lockdown easing, along with unprecedented stimulus measures, have spurred optimism in recent weeks.
• U.S. equity futures advanced along with shares in Europe as investors continue to evaluate the extent of the damage caused by the coronavirus while waiting for the next set of corporate earnings. Oil gained while the dollar strengthened. Investors will be looking for weekly U.S. unemployment figures due Thursday. American retail sales and factory output posted historic declines in March, and surveys in April looked even worse. Bank of New York Mellon, BlackRock and Morgan Stanley are among companies set to report earnings.
• Japanese stocks fell, following a decline in U.S. equities as disappointing economic data and a report by the Federal Reserve damped investor sentiment. Electronics and auto makers weighed on the Topix index the most. The Nikkei 225 Stock Average also fell but managed to close above 19,000 for the seventh straight day. U.S. retail sales and factory output posted historic declines in March, while industrial production slumped a worse-than-expected 5.4%. The Federal Reserve released its Beige Book survey, highlighting economic difficulties faced by businesses and uncertainties to follow in the next months amid the continued coronavirus outbreak.
• Oil was anchored near $20 a barrel as concerns over virus-led demand destruction outweighed an agreement by the world’s biggest producers to curb supply. Futures rose Thursday but remained near their lowest closing level in 18 years, and there are signs that stockpiles are growing globally. U.S. crude inventories ballooned by a record 19.2 million barrels last week. In a key European hub, they jumped by the most in a year, while fuel reserves in Singapore are the highest since August 2016. The glut is looking so severe that the Trump administration is considering paying American companies to leave crude in the ground.
• Gold turned higher again, keeping its unusual tandem with equities as investors gauged the fallout from the coronavirus crisis, fresh economic data and corporate earnings. Both spot prices and gold futures in New York held near a seven-year high hit earlier this week. While the spread between the two has eased from recent peaks, caused by supply chain disruptions, its current level of about $30 is still above normal. The Federal Reserve’s Beige Book survey said activity contracted “sharply and abruptly” across the U.S. Later Thursday, investors will track the latest initial jobless claims for further signs of the damage after huge increases in recent weeks.
• Morgan Stanley rounded out Wall Street’s banner week for trading desks with a 24% first-quarter revenue surge, pushing the industry’s tally to the highest in eight years. The firm, which owns the world’s biggest stock-trading shop, said that business posted a 20% jump in the first quarter, while its fixed-income revenue topped $2 billion for the first time since 2012. The bank didn’t fully sidestep the market volatility as firmwide revenue dropped 8%, driven by more than $1 billion of provisions and writedowns on loans and the markdown of an energy-related investment. “Over the past two months, we have witnessed more market volatility, uncertainty and anxiety as a result of the devastating COVID-19 than at any time since the financial crisis,” Chief Executive Officer James Gormansaid in a statement Thursday.
• The U.K. is expected to extend its nationwide lockdown even as pressure builds on the government to map out a strategy for easing the restrictions amid signs the country may soon be past the peak of the pandemic. U.K. Foreign Secretary Dominic Raab — standing in for Prime Minister Boris Johnson as he recuperates at his country residence following his hospitalization — will make the lockdown call following an emergency committee meeting Thursday against the backdrop of a steadily rising death toll: 12,868 people have now died due to Covid-19 in the U.K., after a daily increase of 761 in the latest figures. Still, hospital admissions and infection rates are stabilizing, and Chief Medical Officer Chris Whitty said at a televised press conference Wednesday the outbreak is “probably reaching the peak overall.”
• President Donald Trump said Monday he had the “ultimate authority” to dictate to states how to reopen their economies, and that he’d craft his plans with advice from a council of top business, medical, and political leaders. By Wednesday, both claims fell apart. He retreated from ordering governors to reopen, after constitutional scholars and even some conservative Republicans said it was beyond his power. And he backed away from an economic council, announcing he’d hold a marathon series of calls with business leaders instead. Trump’s public statements on the coronavirus outbreak show him running into the limits of his power, as well as his ability to bend events, politicians and even the national narrative to his will. While he’s previously used his political standing and bluster to compel cabinet members and fellow Republicans to carry out his wishes, he’s found a virus that’s killed more than 27,000 Americans so far to be undeterred by his usual tactics.
• Gold could top $2,000 an ounce and will remain elevated over the next five years as the global economy contends with the impact of the coronavirus pandemic, according to the head of Newmont Corp., the world’s top miner of the precious metal. “The level of stimulus globally that’s going into the economy certainly underpins higher gold prices for the longer term, and I don’t think that stimulus has stopped yet,” Chief Executive Officer Tom Palmer said Thursday in a phone interview from Perth. “You could certainly see scenarios that have it pushing north of $2,000.” Spot bullion is trading around $1,720 — close to a more than seven-year high — and is forecast by numerous banks to extend gains as the impact of the virus pushes economies toward recession and prompts action from central banks. Those factors are adding to what was already a strong outlook, with rising demand among middle-class consumers in China and India and signs of supply constraints, Palmer said.
• House Speaker Nancy Pelosi promises that a five-member oversight commission to police a major part of the massive coronavirus relief programs “will be in place,” but after two weeks just one member has been appointed. The reasons for delay in choosing the chairman and three additional members aren’t clear. The deadline is less than a month away for the first report by the commission, which will oversee about $500 billion of aid — loans, loan guarantees, and investments — to affected industries, including airlines. Senate Minority Leader Chuck Schumer is the only one of the four top House and Senate leaders to make his appointment, naming Bharat Ramamurti, on April 6. Pelosi, Senate Majority Leader Mitch McConnell and House Minority Leader Kevin McCarthy also name members to the commission, and Pelosi and McConnell will jointly choose a chair.
• U.S. President Donald Trump said he will unveil guidelines to relax stay-at-home rules on Thursday, citing signs that the outbreak is plateauing in parts of the country. Britain is expected to extend its lockdown, even as officials said there are signs the U.K. may soon be past the worst. New cases climbed in Spain and Germany, where the government plans to keep most of the restrictive measures in place. Sweden’s prime minister defended the country’s controversial, laxer policy. Asia continued to grapple with a new wave of infections. Japanese Prime Minister Shinzo Abe is set to declare a nationwide state of emergency as the outbreak spreads and Singapore saw its highest daily increase in cases.
• Apple and Google’s ambitious Covid-19 contact tracing plan creates a tempting target for cybercriminals looking for sensitive health data to find out who’s been infected with the coronavirus. The companies have acknowledged the security risk in a tracking system potentially involving the personal data of millions of people. They’re building in a range of security measures, including anonymous identifiers and encryption keys that change every 15 minutes. Still, beleaguered public health agencies in the program, without the tech giants’ resources and know-how, could violate common law standards and face costly litigation if they’re not careful about their data protection measures, privacy attorneys and former U.S. officials say.
• Royal Dutch Shell Plc plans to eliminate all net emissions from its own operations and the bulk of greenhouse gases from fuel it sells to customers by 2050. The energy giant is following in the footsteps of its peers BP Plc and Repsol SA, which have already set similar targets. Shell’s move indicates that, despite the turmoil caused in the industry by the coronavirus, major oil and gas companies aren’t abandoning the transition to cleaner energy. Shell aims to have net-zero emissions from its own operations, a category known as scope one and two, by 2050. It also intends to reduce the carbon footprint of the energy products it sells to customers, so-called scope three emissions, by around 30% by 2035 and 65% by 2050. To achieve this, the company will sell products with lower carbon intensity, such as renewable power, biofuels and hydrogen.
• The sharpest emergency interest-rate cuts in the European Union are driving unprecedented flows of money into Czech state bonds at exactly the right time to meet the government’s swelling borrowing needs. The Czech central bank reversed two-and-a-half years of monetary tightening by slashing 1.25 percentage points off the benchmark last month to help the economy paralyzed by the coronavirus. Expectations of another half-point rate cut next month, and possibly also asset purchases, are making central-bank deposits less lucrative, diverting cash to new koruna debt to lock in higher yields.
• EasyJet Plc boosted its cash reserves to ride out the coronavirus pandemic, saying it now has sufficient resources to see it through the end of the year. The shares rose after Britain’s biggest discount airline said it had borrowed 400 million pounds ($500 million) against its jet fleet, and may raise 550 million pounds more from selling planes to leasing firms. The steps, combined with ones already taken, should give EasyJet enough to stay liquid for more than nine months, EasyJet said Thursday in a statement. EasyJet’s latest moves to shore up cash come against the backdrop of an air-transport industry in free fall and a side-battle with founder and top shareholder Stelios Haji-Ioannou over how to handle the crisis. Pressured to cull jet orders, Chief Executive Officer Johan Lundgren has instead postponed deliveries, aiming to slow cash outlays while preserving the ability to expand once the crisis around the virus breaks.
• Power traders are predicting a volatile summer in Europe, with prices tumbling below zero more frequently as the coronavirus upends longstanding energy forecasting models. With all of Europe’s major markets in quarantine and electricity consumption about 20% lower than usual, gauging demand in the once-sleepy summer season is now more challenging than ever. Lockdowns to halt Covid-19 have left weekday power consumption looking more like a weekend. Negative prices for power appeared in France, Germany, the Nordic region and Belgium over the Easter weekend.
• The Philippine central bank cut its benchmark interest rate in an unscheduled move, seeking to keep the economy afloat amid the coronavirus outbreak. The Bangko Sentral ng Pilipinas lowered its key rate by 50 basis points to 2.75%, Governor Benjamin Diokno said in a mobile-phone message to reporters Thursday. Policy makers were scheduled to make their next interest rate decision May 21.
• Amazon.com Inc. Chief Executive Officer Jeff Bezos said the online retail giant is developing Covid-19 testing capabilities as a first step toward a system of regular checks on its employees globally. In an annual letter to shareholders, the billionaire founder outlined other steps the e-commerce giant has taken to curb the coronavirus, from shutting down non-essential services like Amazon Books to overhauling processes at Whole Foods. The next step was regular testing for all staff — including those who showed no symptoms, he said. On Thursday, Bezos said his company had assembled a team comprising scientists, managers and software engineers to build internal testing capacity, and hoped to build its first testing lab soon.
• Nomura Holdings Inc. has apologized for a tweet by a senior research employee who criticized U.S. President Donald Trump’s move to withhold funding to the World Health Organization. In a since-deleted tweet using the account of Nomura’s securities unit, Senior Strategist Juichi Wako said Trump’s decision this week to temporarily halt payments to the WHO may have been aimed at distracting U.S. citizens dissatisfied with his response to the coronavirus outbreak. “That would be the same as corona hate anywhere,” Wako wrote, referring to cases of discrimination tied to fears about the virus. “Why not wait until preventing the spread of infections?” Wako said the WHO has been criticized for being “pro-China.”
• Federal Reserve Bank of Minneapolis President Neel Kashkarisays that large U.S. banks should raise $200 billion from private investors and stop paying dividends so they can support the economy. “The most patriotic thing they could do today would be to stop paying dividends and raise equity capital, to ensure that they can endure a deep economic downturn,” Kashkari writes in a Financial Times op-ed. Under severe coronavirus scenarios, large banks with assets of more than $100 billion each could together lose hundreds of billions of dollars of equity capital, stress test modeling by the Minneapolis Fed indicates.
• Volkswagen AG abandoned its full-year outlook after the coronavirus pandemic brought vehicle production and sales to a halt at factories in key markets including China and Germany. “It is currently not possible to determine when a new outlook can be made for the full year,” the world’s biggest carmaker said Thursday in a statement. “The impacts resulting from the pandemic on customer demand, the supply chain and production cannot currently be accurately forecasted.” The group initially targeted global vehicle deliveries on the prior-year level, revenue growth of as much as 4% and an operating profit margin between 6.5% and 7.5% excluding special items.
• Investments in U.S.-listed sector exchange traded funds expanded fourfold last week for the second week of inflows. Health care sector ETFs led the inflows. Real estate sector ETFs had the biggest change from the previous week. Net inflows to ETFs that focus on industry sectors totaled $5.98b in the week ended April 15, including the effect of leveraged funds, compared with $1.48b the prior week.

*All sources from Bloomberg unless otherwise specified