February 3rd, 2020
Daily Market Commentary
- Prognosticators said volatility would be back this year. They were right. And they were correct to predict Canadian stocks would outperform the U.S. What they couldn’t foresee was a viral outbreak that has roiled global markets. While it’s too early to assess the full impact of the coronavirus, now designated a global health emergency, it will have economic repercussions in Canada. China is the second-largest market for Canadian products, according to Bloomberg data. It purchased about C$27 billion ($20 billion) in goods from Canada in 2018, according to Statistics Canada. Canada exported C$22 billion worth of goods to China in the first 11 months of 2019, representing 4% of total shipments abroad. China is also Canada’s largest source of tourist arrivals from the Asia-Pacific region with a record 737,000 Chinese tourists in 2018, according to state agency Destination Canada.
- European shares gained, led by technology, as investors’ concerns over the spread of the coronavirus were calmed by the Chinese government’s emergency stimulus. The Stoxx Europe 600 Index rose 0.1% at 9:07 a.m. in London, after last week’s broad sell-off and a plunge in stocks in mainland China. Basic resources and energy fell amid worries over commodities demand. On the corporate side, French Worldline SA agreed to buy its payment-services rival Ingenico Group, sending the shares of the latter close to 10% higher.
- U.S. equity futures rose and European stocks fluctuated following steep losses on Friday as investors monitored the international response to the coronavirus outbreak. Shares plunged in China in a catch-up move as markets there reopened after a long holiday.
- Shares fluctuated in Hong Kong, which suspended 10 out of 13 border checkpoints with China. Investors shifted gears on Monday after global equities sank in their worst week since August on concern economies will falter as the virus spreads. The People’s Bank of China cut rates as it injected cash into the financial system on Monday, part of a slew of measures to shore up their financial markets. Still, the economic toll is becoming clearer, with Beijing reportedly evaluating whether its growth target this year should be softened.
- Chinese oil demand has dropped by about 3 million barrels a day, or 20% of total consumption, as the coronavirus squeezes the economy, according to people with inside knowledge of the country’s energy industry. The drop is probably the largest demand shock the oil market has suffered since the global financial crisis of 2008 to 2009, and the most sudden since the Sept. 11 attacks. It could force the hand of OPEC and its allies, which are considering an emergency meeting to cut production and staunch the decline in prices.
- Gold slipped from a three-week high amid concerns the coronavirus could hurt jewelry sales in China. There’s a risk that Chinese shoppers will buy less gold jewelry, especially if the coronavirus follows a similar path to SARS, according to Suki Cooper, precious metals analyst at Standard Chartered Bank.
- The death toll from the coronavirus outbreak rose past 360 and total confirmed cases reached almost 17,400. Chinese officials are evaluating cuts to their growth target for 2020 and the central bank stepped in to help cushion the economy. Chinese stocks plunged the most since 2015, catching up with declines elsewhere, as markets reopened after a long holiday. China’s government accused the U.S. of “overreacting” in its response to the outbreak. A new antiviral drug by Gilead Sciences Inc. will be tested by a team in Beijing.
- A $22 billion injection into Chinese markets won’t be enough to prevent the country’s stocks and currency falling on Monday, but it may ease a global sell-off sparked by the spread of the coronavirus. That’s according to analysts after the People’s Bank of China and other regulators announced a slew of measures to shore up their financial markets when they re-open following the Lunar New Year holiday. The central bank said Sunday it will use reverse repurchase agreements to supply 1.2 trillion yuan of liquidity on Monday, with the figure coming to 150 billion yuan ($21.7 billion) on a net basis, according to Bloomberg calculations.
- Tower Infrastructure Trust, an investment vehicle controlled by Brookfield Asset Management Inc., plans to raise as much as 252 billion rupees ($3.5 billion) selling shares and will use the proceeds to acquire stake that it doesn’t own in Reliance Industries Ltd.’s mobile-phone tower unit. The trust has filed a so-called placement memorandum with India’s capital market regulator for the private placement of shares, according to a document on the regulator’s website. The InvIT holds 51% of Reliance Jio Infratel Private Ltd., which runs the tower infrastructure services for Reliance Jio Infocomm Ltd.
- Iran’s oil minister said the coronavirus outbreak has weakened crude demand in China and called on other producers to take action in order to support prices, the state-run Islamic Republic News Agency reported. “The oil market is under pressure and prices have fallen below $60 a barrel. Efforts must be made to restore balance,” Bijan Namdar Zanganeh told reporters Monday in Tehran, according to IRNA. Chinese oil demand has dropped by about 3 million barrels a day, or 20% of total consumption, as the coronavirus squeezes the economy, according to people with inside knowledge of the country’s energy industry.
- China has kick-started a clinical trial to speedily test a drug for the novel coronavirus infection as the nation rushes therapies for those afflicted and scours for vaccines to protect the rest. Remdesivir, a new antiviral drug by Gilead Sciences Inc. aimed at infectious diseases such Ebola and SARS, will be tested by a medical team from Beijing-based China-Japan Friendship Hospital for efficacy in treating the deadly new strain of coronavirus, a hospital spokeswoman told Bloomberg News Monday. Trial for the drug will be conducted in the central Chinese city of Wuhan — ground zero of the viral outbreak that has so far killed more than 360 people, sickened over 17,000 in China and spread to more than a dozen nations. As many as 270 patients with mild and moderate pneumonia caused by the virus will be recruited in a randomized, double-blinded and placebo-controlled study, Chinese news outlet The Paper reported on Sunday.
- Emmanuel Macron struck a conciliatory tone in a bid to rekindle France’s relationship with Poland. In the first visit to Warsaw by a French head of state in six years, he’s seeking to mend relations strained by his criticism of Poland’s controversial overhaul of the judiciary and its rejection of a deal with Airbus in 2016.
- Turkey’s inflation accelerated faster than forecast for a second month, pushing its real interest rates further below zero and to the same level as Japan’s after five rounds of aggressive monetary easing. While inflation is close to peaking, the central bank might face its most contentious decision under a new governor later this month after pledging to make its next steps “data driven.” Price growth in January exceeded all but four estimates in a Bloomberg survey of 22 economists, reaching an annual 12.2% from 11.8% in December, according to data released on Monday.
- China’s central bank took its first concrete steps to cushion the economy and plunging markets from the blow of a spreading new virus, providing short-term funding to banks and cutting the interest rate it charges for the money. The People’s Bank of China added a net 150 billion yuan ($21.4 billion) of funds on Monday using 7-day and 14-day reverse repurchase agreements. The rate for both was cut by 10 basis points, driving down the cost of the money to “ensure ample liquidity during the special period of virus control,” it said in a statement. PBOC adviser Ma Jun indicated he expects further rate cuts later in the month.
- Toyota Motor Corp.’s luxury Lexus brand posted a double-digit sales gain last year, taking its 30th anniversary in stride as strength in China and Europe offset stalled demand in North America. The brand, which debuted in 1989, grew 10% to 765,330 vehicles worldwide, Toyota said in a statement Monday, powered by strong sales of its UX subcompact crossover and best-selling RX sports utility vehicle. China sales soared 25% to 202,000 vehicles in 2019 and deliveries in Europe climbed 14% to 87,000 vehicles. But in North America, the brand’s largest market, sales came to 325,000 vehicles — which Toyota said were “level with prior year.“
- India expects to complete a $7.4 billion sale of its entire stake in the second-biggest state refiner by September as it speeds up the privatization of state-owned assets to help plug the budget gap. “There are no pending issues to be resolved in the sale of Bharat Petroleum Corp. and bids would be invited in a few days,” Tuhin Kanta Pandey, secretary for disinvestment, said in an interview on Monday. “We are expecting to complete the transaction in the first half of the next financial year.”
- Elizabeth Warren, once riding high in crucial Iowa after months of pushing her detailed plans, has been usurped as the darling of the progressive left by a surging Bernie Sanders. Warren spent the first six months of 2019 crisscrossing Iowa. By September, it seemed like her “I have a plan for that” pitch had resonated. Warren took the lead in the state, giving her credibility as a challenger to national front-runner Joe Biden. But despite all the plans she released and all the hands she shook, by the time the voting was actually set to start, her support had flagged. In an Emerson poll of likely Democratic caucus-goers released Sunday, she ranked at 14%, half the 28% support enjoyed by Sanders, who Iowa observers are predicting to win the Iowa caucuses on Monday night.
- China’s stock market opened to the most savage wave of selling in years, with thousands of shares falling by the daily limit after just minutes of trading. Though investors turned on computers hours early to tee up their sell orders, many of them couldn’t exit the market fast enough. All but 162 of the almost 4,000 stocks in Shanghai and Shenzhen recorded losses, with about 90% dropping the maximum allowed by the country’s exchanges. Health-care shares comprised most of Monday’s gainers on speculation they will benefit from the virus outbreak.
- Microsoft Corp. is soaring and so is Satya Nadella’s compensation. The chief executive officer is poised to receive 900,000 shares this week — worth $153 million — thanks to the software company’s stock return, which has beaten almost all firms in the S&P 500 Index over the past half-decade. Microsoft’s market value surpassed $1 trillion last year and has kept climbing, buoyed by optimism around its cloud business and expectations that it’s a safer bet than other large technology firms that face regulatory scrutiny in Europe and the U.S.
- As the workday wound to a close Friday evening, employees from Hulu flocked to local watering holes across Santa Monica, California, to toast the end of an era. Some were thrilled. Some fought back tears. But they all accepted that Hulu’s days as a stand-alone operation were over. Earlier that day, Walt Disney Co. had announced Hulu Chief Executive Officer Randy Freer would depart in the coming weeks, and the people underneath him would now report to Disney managers. The world’s largest entertainment company is tightening its grip on Hulu after the successful launch of Disney+ in November and a push to sell all its streaming services in a single discounted bundle.
*All sources from Bloomberg unless otherwise specified