April 24th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian stocks ended Thursday’s session slightly lower, pairing earlier gains, after a Chinese trial of Gilead’s promising Covid-19 drug appeared to be a failure. The S&P/TSX Composite index fell 0.3% in Toronto, after rising as much as 0.9% in early trading. Gilead Sciences Inc.’s antiviral drug remdesivir flopped in its first randomized clinical trial, the Financial Times reported, citing draft documents published accidentally by the World Health Organization. However, the drug company disputed that characterization. The only sectors that were positive within the index were mining and energy, as oil and metal prices rose. Shopify contributed the most to the index decline, decreasing 1.9%, while Alaris Royalty had the largest drop, falling 7.8%. Gold miners Agnico Eagle Mines provided one of the biggest boosts to the index, advancing 5.5%. Baytex Energy had the biggest gain, rising 15%.

World Headlines

• European stocks fell, snapping two days of gains after the region’s leaders failed to agree on a long-term stimulus package and reports of a failed Covid-19 drug trial weighed on sentiment. The Stoxx Europe 600 Index dropped 1.2% as of 8:24 a.m. in London, heading for its first weekly drop in three. All 19 industry groups were down, with cyclicals including carmakers and banks leading the decline. Earnings were also in focus: Food giant Nestle SA gained 1.4% after reporting its fastest sales growth since 2015 as consumers loaded up on frozen food. Oil major Eni SpA dropped 2% after reporting a 94% slump in first-quarter profit and cutting its production forecast for the year.
• U.S. equity futures turned higher as investors assessed the latest virus numbers and fresh stimulus measures to limit the economic hit from the coronavirus pandemic. Oil fluctuated. Futures on the three main American equity gauges pointed to gains on Wall Street after the House overwhelmingly passed and sent to President Donald Trump a $484 billion aid package. Intel Corp. fell in the pre-market after the chipmaker withdrew its full-year sales forecast, citing “significant economic uncertainty” caused by Covid-19.
• Japanese shares fell for a fourth day this week as chip-sector stocks dropped amid concerns over the impact of the global coronavirus pandemic. A group of electronics makers including semiconductor-related stocks weighed most heavily on the Topix index, which declined 1.5% on the week. Intel Corp. withdrew its full-year sales forecast, citing “significant economic uncertainty” caused by the outbreak. The world’s largest semiconductor maker reported an upbeat 23% jump in first-quarter revenue, bolstered by demand for chips that run the laptops and server machines companies.
• Crude renewed its decline at the end of a dramatic week that saw prices in New York plunge below zero for the first time in history. U.S. benchmark futures for June delivery were little changed above $16 a barrel after the May contract fell as low as -$40.32 on Monday before expiring the next day. In response, U.S. operators have already started to shut in old wells and halt new drilling, actions that could reduce output by 20%, while Kuwait and Algeria said they are reducing production earlier than required under the OPEC+ deal.
• Gold headed for a weekly advance on expectations there’ll be more stimulus measures to boost virus-hit economies, with RBC Capital Markets predicting allocations to bullion will increase, at least for now. Bullion held steady on Friday, trading near the highest in more than seven years as the pandemic triggers an unprecedented wave of stimulus from governments and central banks. With the global economy likely to suffer its worst downturn since the Great Depression this year, investors are seeking a haven from market turmoil pouring into exchange-traded funds backed by gold.
• U.S. President Donald Trump’s comments on injecting bleach to kill the coronavirus sparked concern among experts who called it a ‘ridiculous concept’ that would damage the lungs. British Prime Minister Boris Johnson is ‘raring to go,’ but will follow doctors’ advice on returning to work. Spain had its fewest deaths in five weeks and new cases in Singapore dropped below 1,000 for the first time in five days. Russia reported the most new cases since April 19 and Germany had its worst day in almost a week, after Chancellor Angela Merkel said the country is ‘far from being out of the woods.’ Germany expects its economy to shrink as much as 7% this year, the worst contraction since at least 1950, Spiegel magazine reported. Europe’s leaders inched toward an agreement on rebuilding plans, while U.S. lawmakers overwhelmingly passed a $484 billion aid bill.
• Russia’s crude oil and condensate production has held steady so far in April as the nation gets ready to deliver its largest ever output cuts in tandem with other global suppliers. The country’s producers pumped 35.422 million tons of oil from April 1 to April 23, according to data from the Energy Ministry’s CDU-TEK unit seen by Bloomberg. That’s equal to 11.289 million barrels a day, based on a 7.33 barrel-per-ton conversion ratio. The nation pumped just over 11.29 million barrels a day in March. Russia, which has been free to pump at will since April 1 after the collapse of the previous OPEC+ deal, sees no sense in raising output given the global oil glut, Energy Minister Alexander Novak said earlier this month.
• Boeing Co. is poised to cut 787 Dreamliner output by about half and announce workforce reductions when it reports first-quarter earnings next week, said people familiar with the plans. Details of the production changes for Boeing’s commercial lineup are still being finalized and will determine the number of jobs to be eliminated through layoffs and buyouts, said the people, who asked not to be named as the discussions are confidential. The planemaker plans to lower the Dreamliner’s monthly output, which began the year at 14 jets, to a single-digit rate.
• President Donald Trump returned to the lectern Thursday after a government scientist’s presentation about studies showing that sunlight, humidity and disinfectants kill the coronavirus on surfaces — in some cases within seconds. What Trump suggested next later sparked warnings from doctors and manufacturers of household cleaners. Bill Bryan, an undersecretary at the Homeland Security Department, told reporters during the White House’s daily task force briefing that research had shown bleach could kill the virus in saliva or respiratory fluids in five minutes and isopropyl alcohol could kill it even more quickly.
• Spain recorded the smallest number of new coronavirus deaths in nearly five weeks, as the nation remains on almost-total lockdown due to Europe’s most extensive outbreak. The number of fatalities rose by 367 to 22,524 in the 24 hours through Friday, the fewest since March 21 and compared with Thursday’s increase of 440, according to Health Ministry data. Total confirmed cases rose by 6,740, the most since April 4, to 219,764, while 92,355 people have recovered from the disease. As other countries in Europe start to ease lockdowns, Spain has yet to publish detailed plans on lifting the restrictions that have brought the nation to an almost complete standstill for more than a month. Prime Minster Pedro Sanchez has said that a cautious easing may begin next month, as the spread of the virus has slowed and stabilized in recent days.
• The Bank of Russia reduced interest rates by half a percentage point and signaled more rate cuts as the economy heads into its worst economic slump in more than a decade. The benchmark interest rate was cut 50 basis points to 5.5%, the central bank said in a statement, the lowest level since before Russia’s 2014 annexation of Crimea. The move was forecast by a majority of economists in a Bloomberg survey. The ruble strengthened and government bonds rallied. The central bank “holds open the prospect of a further key rate reduction at its upcoming meetings,” according to the statement. The bank forecast an economic contraction of 4% to 6% this year and said prices for Russia’s Urals blend of oil could average $27 a barrel, about half what was previously expected.
• Housebound Americans looking to avoid supermarket anxiety have been bombarding FreshDirect, Kroger, Amazon and others for more than a month now. Incessant clicking in the hope of scoring a slot—followed by sudden cancellations or half-filled orders—are the new normal. Seizing this opportunity, smaller upstarts have stepped in—aiming to satisfy the intense demand while building customer loyalty for when the pandemic recedes. For some of them, it’s been boom times—perhaps too much so. The logistics of being a small online grocer with a sudden surge of orders can be brutal, and ramping up a grocery delivery business can’t be done overnight.
• Buying corporate bonds overseas is emerging as the top strategy for Japan’s life insurers, as they look to beef-up returns in a world of depressed sovereign yields and mounting stock losses. Four of them, including the biggest players Nippon Life Insurance Co. and Japan Post Insurance Co., plan to boost their holdings of foreign credit with currency hedges in the fiscal year that began April 1. Most have a preference for investment-grade debt in the U.S., followed by Europe.
• China’s central bank rolled over some of the targeted funds due Friday while cutting interest rates on the loans, the latest in a string of measures aimed at ensuring sufficient liquidity. The People’s Bank of China injected 56.1 billion yuan ($7.9 billion) into the banking system via the targeted medium-term facility, just as 267.4 billion yuan of the debt comes due. The one-year funding was offered at an interest rate of 2.95%, lowered from the 3.15% of the last operation in January. Analysts had expected a cut after the central bank lowered rates on some of its other policy tools to all-time lows. It skipped offering short-term funding via open market operations for a 17th consecutive day, according to a statement. The yield on 10-year government bonds fell to as low as 2.46% after the announcement, not seen since 2002. Futures of the same tenor gained 0.09% Friday, setting another record-high close.
• Treasury Secretary Steven Mnuchin has won bipartisan praise for quickly shoveling billions of dollars in pandemic relief into the economy — a rare bright spot in an administration under intense criticism for its coronavirus response. Yet whether that round of applause is fleeting depends on how quickly the world’s largest economy recovers from the coronavirus outbreak. Mnuchin is optimistic. He says he doesn’t think the U.S. will suffer rolling shutdowns for 18 months or longer until a vaccine is widely available, the prediction of Minneapolis Fed President Neel Kashkari. “That’s highly unlikely that this goes on for that period of time,” the Treasury chief said in a Bloomberg News interview on Thursday. “You’re going to see an opening up in May and June. You’re going to see a strong rebound in the economy in the end of the third quarter and the fourth quarter.”
• American Express Co. said it will aggressively reduce costs after provisions to cover souring loans tripled in the first quarter and the coronavirus pandemic began to crimp consumer spending. The credit-card company said that provisions rose to $2.6 billion in the first three months of the year as people across the nation were ordered to stay home to stem the spread of the deadly virus. It also warned that the slowdown it began to see in March as a result of the nationwide shelter-in-place orders has “dramatically” impacted spending on its cards in April.
• Australia’s largest gold refinery has ramped up production of one kilogram bars to ease the supply squeeze in the U.S. that helped propel a surge in the premium for New York futures. The collapse in air travel that’s grounded passenger jets — frequently used to transport gold products — and virus-related disruptions to some refining capacity has tightened availability of the rectangular bars, typically used to settle the Comex futures contracts. “We’re producing as many kilobars as we can, we’re probably churning out seven and a half tons of them a week at the moment and we are forward sold well into May,” Richard Hayes, chief executive officer of the Perth Mint, said in an interview. “A very large portion of those kilobars are ending up as Comex deliveries.”
• Verizon Communications Inc. topped Wall Street earnings estimates but fell short of revenue expectations after Covid-19 damaged first-quarter sales, and the company is revising its financial forecast for the year due to the pandemic. Verizon said full-year adjusted earnings will range from a decline of 2% to a gain of 2%, and it withdrew its revenue guidance. Previously, the company expected 2% to 4% profit growth and low- to mid-single-digit sales gains. Analysts predicted no earnings growth and a 1% revenue decline in 2020. First-quarter earnings of $1.26 a share beat analysts’ estimate of $1.22, while revenue of $31.6 billion fell short of the $32.38 billion analysts predicted.
• Each day without a euro-area consensus on a rescue package for the embattled economy, Italian bonds grow ever more vulnerable to the risk of rating downgrades. The nation’s bonds swung between gains and losses after European leaders failed yet again to agree on a joint response to the coronavirus crisis, heightening fears about the economic devastation facing the region’s more vulnerable economies. Benchmark 10-year yields are headed for a fourth straight weekly jump on concern that S&P Global Ratings could take the nation closer to junk status Friday.
• Investments in U.S.-listed commodity exchange traded funds declined 8% last week for the fifth straight week of inflows. Energy ETFs led the inflows. Precious metals ETFs had the biggest change from the previous week. Net inflows to ETFs that focus on commodities totaled $4.41b in the week ended April 23, including the effect of leveraged funds, compared with $4.8b the prior week
• Freeport-McMoRan Inc., the world’s biggest publicly traded copper miner, said it will slash capital expenditures by $800 million this year as the coronavirus flattens global demand. The move is designed to protect the health of employees and “protect the company’s strong liquidity position through reductions in costs and capital spending while preserving the long-term value of the company’s assets,” the company said in a statement.

*All sources from Bloomberg unless otherwise specified