March 16th, 2020
Daily Market Commentary
- Canada’s corporate bond spreads widened last week at a faster pace than when Lehman Brothers crumbled. In response to the crash in oil prices and the coronavirus pandemic, the Bank of Canada surprised the market Friday by cutting interest rates by half a percentage point. The extra yield investors demand to hold Canadian dollar investment-grade debt widened by 40 basis points since March 6 to 1.85%, according to Bloomberg Barclays indexes. That’s the most rapid deterioration of the risk spread on record. Previously, the gauge had widened 37 basis points in the week ending Oct. 3, 2008.
- The Government of Alberta will increase the province’s health budget by C$500 million to deal with coronavirus, according to a release Sunday. “The new funding will ensure front-line health professionals have the tools they need for testing, surveillance, and treatment of patients as the province works to prevent the spread of COVID-19”
- European equities slumped to their lowest in more than seven years as fear over the economic damage from the spreading coronavirus heightened despite the U.S. Federal Reserve’s actions. The Stoxx Europe 600 Index fell as much as 9.1% to the lowest since November 2012. The benchmark lost 18% last week in its worst drop since the 2008 financial crisis. While the Fed on Sunday slashed its benchmark interest rate by a full percentage point to near zero and other central banks strengthened efforts to stabilize capital markets, investors remain concerned about the growing economic fallout from the virus.
- U.S. stock futures tumbled, wiping out the rally that lifted Wall Street in Friday’s last hour and tripping exchange trading curbs, as investors worried that emergency measures by the Federal Reserve will fall short of cushioning the coronavirus’s blows to the economy. An exchange-traded fund tracking the S&P 500 plunged more than 9%. Contracts on the S&P 500, whose violent swings have triggered limits in five of the past six sessions, dropped 4.8% to 2,555.50 and stayed pinned there by loss-restricting circuit breakers. The SPDR S&P 500 ETF Trust security, which isn’t subject to the bands, traded at $243.79 at 7:13 a.m. in New York after closing Friday at $269.32.
- The yen rebounded from Friday’s plunge after the Fed and five counterparts said they would deploy foreign-exchange swap lines. Australian equities fell almost 10%, the most since 1992, even after the Reserve Bank of Australia said it stood ready to buy bonds for the first time — an announcement that sent yields tumbling. New Zealand’s currency slumped after an emergency rate cut by the country’s central bank. Japanese shares declined in a volatile session as investors weighed the Bank of Japan’s decision to double its annual purchase target for exchange-traded funds but not cut its negative interest rate any further for now. The Topix index closed lower after swinginging between a gain of 2.1% and loss of 2.4%. The BOJ, which moved up its policy meeting to Monday from Thursday amid growing global concerns over the coronavirus, said it will raise its target for net purchases of ETFs to 12 trillion yen ($113 billion), adding that “in principle” it will continue to buy at the current pace of 6 trillion yen.
- Oil’s spectacular collapse deepened as widening global efforts to fight the spread of the coronavirus looked set to trigger the most severe contraction in annual oil demand in history. Futures tumbled more than 9% after losing a quarter of their value last week. Demand for jet fuel, gasoline and diesel is falling off a cliff as a result of global action to prevent the spread of coronavirus, with gasoline futures reaching their weakest level since at least 2005. Even a massive emergency move by the U.S. Federal Reserve to cushion the world’s biggest economy just added to the fear gripping markets. Forecasts for global oil use are being cut dramatically as government measures to contain the spread of the pandemic restrict the movement of people and throw supply chains into chaos. At the same time, giant producers are unleashing a flood of supply after the disintegration of the OPEC+ alliance.
- Precious metals took another beating on concerns that a wave of emergency stimulus measures by central banks won’t be enough to improve a rapidly deteriorating economic outlook. Gold, coming off the biggest weekly drop in almost four decades, extended losses below $1,500 an ounce as market sentiment soured even after further emergency moves by the Federal Reserve. Platinum tumbled the most on record and silver fell the most since 2011. The gold market is caught between demand for a haven and a rush to raise cash and cover losses in other markets. While retail dealers from Singapore to the U.K. recently saw a spike in demand for precious metals, gold exchange-traded funds had their biggest outflow since 2016 on Friday, data compiled by Bloomberg show.
- Cathay Pacific Airways Ltd. said it made a “significant” unaudited loss of more than HK$2 billion ($257 million) in February alone because of widespread disruption from the coronavirus, as its passenger numbers slumped 54% from a year earlier. The monthly loss is for Cathay and its other full-service unit Cathay Dragon, Chief Customer and Commercial Officer Ronald Lam said in a statement Monday. The figure is bigger than the airline’s HK$1.69 billion net income for last year, which it reported last week. Lam said Cathay will only operate a “bare skeleton passenger flight schedule” for April that represents a capacity reduction of up to 90%, a situation that could continue into May if there’s no relaxation of travel restrictions that have been imposed by countries globally.
- Apple Inc. was fined a record 1.1 billion euros ($1.2 billion) by French antitrust regulators for anti-competitive agreements with suppliers that thwarted independent resellers. The French competition authority also fined two of Apple’s wholesalers — Tech Data and Ingram Micro — 76.1 million euros and 63 million euros for taking part in the sales curbs. The case focuses on the distribution of all Apple products except iPhones. “Apple and its two wholesalers agreed to not compete against each other and prevent resellers from promoting competition between each other, thus sterilizing the wholesale market for Apple products,” Isabelle de Silva, head of the French agency, said in a statement on Monday.
- A measure of fear in U.S. stocks surged to the highest since 2009, surpassing last week’s peak as an emergency move by the Federal Reserve to ease policy did little to calm markets on edge over the spreading coronavirus. The generic front-month futures contract for the CBOE Volatility Index jumped as high as 57.9 on Monday. The gauge measures traders’ expectations for where the VIX will trade a month from now. Wall Street’s fear barometer, which tracks the 30-day implied volatility of the S&P 500 based on out-of-the-money options prices, wasn’t quoted as of 9:15 a.m. London time. A notice on Cboe’s website said the opening for S&P 500 and VIX products has been delayed.
- Transport-fuel prices are crashing as the coronavirus outbreak shuts down swathes of the world’s economy, limiting the movement of people. U.S. gasoline futures fell to their lowest since 2005, when they began trading. The plunge has sent the fuel — usually one that refiners seek to maximize output — close to being loss-making. The meltdown also extends to jet fueland diesel markets as the impact of the coronavirus outbreak on people’s movement grows worldwide.
- Italy’s government will meet Monday to pass a new package of measures including increased spending for its stricken healthcare sector and moves to cover extraordinary layoffs after deaths in the country from the coronavirus jumped by 368 Sunday. Premier Giuseppe Conte said the country will need a “recovery plan” as the new package won’t be enough to sustain the economy, according to an interview with daily Corriere della Sera. Damage from the virus to companies will be “serious and widespread,” he said. Conte’s cabinet, which has pledged to spend 25 billion euros ($28 billion) on stimulus measures to aid an economy under a nationwide lockdown, will convene at 10 a.m. in Rome to approve the package, according to the government website.
- Federal Reserve Chairman Jerome Powell recognizes that he can’t prevent what increasingly looks like a sudden stop of the U.S. economy, but he’s still hoping to avoid a freezing up of financial markets that makes the pain even worse. In a roughly 40-minute conference call with reporters on Sunday after the Fed slashed interest rates close to zero and launched a fresh quantitative easing program, Powell acknowledged the economy is set to contract in the second quarter as companies and households hunker down to hinder the spread of the deadly coronavirus.
- Airlines worldwide will shrink operations to only a trickle of flights, severing global links and putting hundreds of thousands of jobs at risk as they fight to preserve cash and survive the coronavirus pandemic. British Airways owner IAG SA will slash capacity for April and May by at least 75% amid the collapse in demand and government restrictions aimed at slowing the disease. Partner American Airlines Group Inc. will cut international long-haul flights by the same degree in the biggest reductions by a U.S. carrier. Ryanair Holdings Plc and Air France-KLM announced even deeper cuts at 80% and 90% respectively, and the Irish company said its entire fleet may be grounded. Paris’s two biggest airports plan to shutter terminals as major travel hubs around the world stand almost empty, while TUI AG, the largest vacation firm, will suspend the bulk of its package holiday, cruise and hotel operations.
- Infections outside China surpassed those on the mainland, while the World Health Organization said Europe is reporting more new cases each day than China did at its peak. The outbreak continued to spread in the U.S. and Goldman Sachs Group predicted the country’s economy would shrink 5% in the second quarter. The Federal Reserve slashed rates to near zero and the Bank of Japan strengthened stimulus as central banks moved to blunt the financial impact of the outbreak. Airlines cut flights and a consultant warned many could go bankrupt by May.
- Even with oil prices having slumped, Saudi Aramco said it still intends to give at least $75 billion to shareholders this year. The world’s biggest company by market value, which listed in the Saudi Arabian capital of Riyadh in December, will pay the dividends on a quarterly basis, it said in its 2019 financial results released on Sunday.
- A $17 billion Lockheed Martin Corp. system used since 2009 to monitor F-35 fighter jets for repairs, parts replacement and general maintenance is rife with flaws, sometimes forcing personnel to spend hours entering data by hand, according to congressional auditors. Maintenance crews at one of five U.S. Air Force, Navy and Marine Corps bases that were reviewed “estimated they spend an average of 5,000 to 10,000 hours per year manually tracking information that should be automatically and accurately captured” by Lockheed’s system, the Government Accountability Office said in a report obtained by Bloomberg News.
- The European Central Bank freed up about 100 billion euros ($112 billion) of bank capital to maintain the flow of credit amid the spread of the coronavirus, according to a top regulator. The money will be available for lending after the ECB decided to allow banks to operate with lower capital buffer and use subordinated debt to help meet their individual requirements, European Banking Authority Chairman Jose Manuel Campa said on Bloomberg TV.
- Burger King India Ltd., owned by private equity fund Everstone Capital, is putting its planned initial public offering on hold after the country’s equities market tumbled on fears of a global economic slowdown and the spread of novel coronavirus, people familiar with the matter said. The company decided to postpone launching the share sale after discussions with its advisers, said the people, who asked not to be identified as the information is private. The retailer initially planned to start the IPO before the end of this month, with a target to raise about 4 billion rupees ($54 million), according to a preliminary prospectus.
*All sources from Bloomberg unless otherwise specified