March 20th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian equities rose Thursday as investors continue to digest global stimulus plans while also on the lookout for buying opportunities. After sliding as much as 3.1% at the open, the S&P/TSX Composite erased that slump, rising to close 3.8% higher. All eleven sectors rose, with cannabis and energy producers among some of the biggest gainers. Pot stocks rallied after Bank of America said that people cooped up at home has spurred higher demand for marijuana. Hexo Corp. was the No. 1 stock on the benchmark with a 56% surge. Oil and gas stocks joined the rally in crude after U.S. President Donald Trump said he could get involved in the standoff between Saudi Arabia and Russia that had roiled the commodities market.
• Prime Minister Justin Trudeau’s spending this week is just the start of a multiphase effort to stave off a recession that is expected to drive Canada’s budget deficit past C$100 billion ($69.5 billion) this year. Trudeau’s finance minister, Bill Morneau, acknowledged Thursday the government anticipates it will need to take more steps to help businesses and individuals cope with fallout from the coronavirus pandemic, building on the C$27 billion stimulus package announced Wednesday. This could include aid to struggling businesses in the airline and oil industries and other sectors, he said. “There is going to be a second phase, and a third phase and potentially a fourth phase where we are dealing with new information and new challenges,” Morneau said in a television interview with BNN Bloomberg, reiterating the “whatever it takes” mantra that’s become ubiquitous among global policy makers. “We are not only dealing with what we have today, we are preparing ourselves for next steps.”
• Air Canada is looking to lay off more than 5,100 of its cabin crew members due to the slump in flights related to the coronavirus outbreak, CBC reported, citing a March 19 letter from Renee Smith-Valade, the airline’s vice president of in-flight service. Layoffs will impact about 3,600 Air Canada crew members and all 1,549 workers at the airline’s Rouge unit, Canadian Union of Public Employees, which represents the airline’s flight attendants, confirmed to CBC

World Headlines

• European equities climbed, on track for their biggest two-day advance since 2008, on investor relief about unprecedented stimulus measures to ease the economic fallout of the coronavirus pandemic. The Stoxx 600 Index rose 4.5% as of 9:28 a.m. London time, taking its advance since the sell-off’s lowest intraday point on March 16 to 12%. The benchmark is heading for its first weekly advance since mid-February. Friday saw a comeback for some of Europe’s hardest hit sectors, with travel stocks up more than 8%, poised for their best day since October 2008. Oil stocks rallied on a record surge in crude after U.S. President Donald Trump said he could intervene in the price war between Saudi Arabia and Russia.
• U.S. stock index futures rallied after the calmest cash session on Wall Street in two weeks, mirroring sharp gains in European equities as investors assessed the raft of measures unveiled by governments and central banks to fight the economic impact from the virus. June contracts on the S&P 500 were up 4% as of 5:30 a.m. in New York, while contracts on the Nasdaq 100 hit exchange-enforced bands that prevent further gains.
• Shares jumped across Asia from Beijing to Sydney. They added more than 7% in Seoul but were closed in Tokyo for a holiday. Treasuries rose, though traders reported thin liquidity. The dollar weakened against its major peers after vaulting more than 8% in the previous eight sessions. The pound, Australian dollar, Norwegian krone and South Korean won all leaped more than 2% versus the greenback, as dollar-swap lines kicked in at more central banks. Oil extended its rebound from a day earlier.
• Oil rallied for a second session as President Donald Trump waded into the price war between Saudi Arabia and Russia, while a Texas regulator proposed his state could coordinate output cuts with the feuding producers. Futures in London topped $30 a barrel, continuing a rebound from their lowest level since the early 2000s. Texas’s main oil regulator is considering curbing output for the first time in almost half a century, though the idea is still in preliminary discussions. President Trump has said he could intervene in the deepening price war between Saudi Arabia and Russia when the time is right. Though that’s given renewed optimism to markets that a deal can be found, Russia is said to be planning to hold out amid crude’s slump.
• Bullion got a reprieve Friday as the dollar halted its rally, although the metal remains poised for a back-to-back weekly loss. Gold headed for its biggest daily gain since March 3 and silver earlier jumped the most since 2014. Precious metals are rebounding after days of relentless selling by investors seeking liquidity to navigate the extreme volatility shaking global markets. Stocks and bonds also climbed as investors assess expanding measures defend economies against the coronavirus fallout.
• Prime Minister Giuseppe Conte’s government is set to reinforce and extend the near-total lockdown on Italy as it struggles to contain the coronavirus, after overtaking China as the country with the highest recorded number of deaths. Conte is weighing extending the current ban on non-essential activities until at least early May, according to officials who asked not to be named discussing confidential deliberations. The decision depends on factors including the spread of infections and the fact that many Italians aren’t respecting the rules, the officials said. The government may call in the army to help enforce the restrictions and schools may not reopen before the summer break, the officials added. The further tightening may also include a ban on outdoor sports and on Italians’ “passeggiate,” or strolls, with citizens allowed to leave their homes only for work or health reasons, or for emergencies.
• The guardians of the world economy are in a two-front war. They are having to defend businesses and consumers that suddenly look frighteningly vulnerable to the coronavirus — and contain a rout on financial markets that threatens to make things even worse. Those battles amid a unique pandemic this week forced political leaders and central bankers into action at a pace that puts even that of the 2008 financial crisis in the shade. Their economies are on course to post historic slumps in output over the coming weeks, a prospect that is panicking investors. After a week of turbulence, markets showed flickers of optimism Friday. It’s a positive sign, but if investors, executives and the general public can’t be persuaded that there’s light at the end of the tunnel for the U.S. and Europe in the second half of this year, then they risk turning darker scenarios into self-fulfilling prophecies – and pushing the world into a deeper downturn and perhaps even a Depression.
• The coronavirus pandemic has killed more than 10,000 people, according to data from Johns Hopkins University, and the World Health Organization said the disease is now infecting people at a faster pace. It took three months for the first 100,000 cases, but only 12 days for the next 100,000. Italy is set to reinforce and extend the near-total lockdown after fatalities surpassed those in China, which again reported no new cases in the outbreak’s initial hub. Britain will set out a package to help save millions of jobs and Germany is considering emergency spending measures. California announced a statewide stay-in-place order, the most stringent U.S. effort yet to curb the spread of the virus. The dollar fell on fears other states may follow suit and push the world’s largest economy into recession. Altria Group said its CEO had tested positive.
• Texas’s main oil regulator is weighing for the first time in nearly half a century whether the state should curb crude production, a move that would have an enormous economic and political impact. The idea, still in preliminary discussions among the staff at the Texas Railroad Commission — which despite its name regulates the oil industry — comes after prices plunged to levels last seen 18 years ago. It shows that a policy once considered unthinkable is now being mulled as companies slash spending. As a first step, the staff is reviewing how implementing the reduction of output via what’s known as pro-rationing would look like in practice, according to people who have discussed the issue. On first review, the staff believes it’s legally possible to mandate pro-rationing, one of the people said.
• Filings for U.S. unemployment benefits are poised to surge to a record 2.25 million this week, according to a Goldman Sachs Group Inc. analysis of preliminary reports across 30 states. With businesses shutting down because of coronavirus-containment efforts, jobless claims are already climbing — by 70,000 to 281,000 for the week through last Saturday, Labor Department data showed Thursday. That was the biggest increase since Hurricane Sandy in 2012. The level Goldman projects for the week through March 21 is more than triple the prior peak of 695,000, in 1982.
• California Governor Gavin Newsom ordered that all of the state’s 40 million residents go into home isolation starting Thursday evening, marking the most stringent U.S. effort yet to stymie the spread of the novel coronavirus. “This is a moment where we need some straight talk,” Newsom said in a press conference. “As individuals and as a community we need to do more to meet this moment.” The shelter-in-place order vastly expands mandates put in place earlier this week across the San Francisco Bay Area. It allows people in the most populous U.S. state to leave their homes for needed items like groceries and medicine, while otherwise requiring that they limit their social interactions. Businesses not deemed essential will be shut.
• House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have forged the most important relationship in Washington, as the nation’s lawmakers frantically work to stop an economic collapse precipitated by the coronavirus outbreak. While the pair hashed out legislation last Friday to provide Americans with free testing for the virus and paid sick leave, they joked that they had managed two phone calls between them in the same time it took President Donald Trump to hold a news conference in the White House Rose Garden. Mnuchin quipped to Pelosi that he can’t control how long his boss spends in front of a microphone.
• As it pleads for help in Washington, Boeing Co. is mapping out a series of drastic steps it may have to take to conserve cash during a swift and dramatic collapse in demand for air travel that’s threatening the company’s survival. The aircraft maker was already reeling from the grounding of its 737 Max following two crashes, costing it billions of dollars in compensation to customers. Now it’s evaluating layoffs, a production pause and reductions to its research budget among a range of cost-cutting options, people familiar with the matter said. Adding to the financial squeeze from the coronavirus crisis: Boeing’s factory in Everett, Washington — the company’s largest — faces a growing risk of shutdown because of an outbreak among workers, said one of the people, who asked not to be named because the deliberations are private.
• The Bank of England canceled its annual health check of eight major U.K. banks and building societies and signaled that lenders shouldn’t race to set aside provisions for bad loans due to the coronavirus pandemic. The moves were made to “help lenders focus on meeting the needs of U.K. households and businesses via the continuing provision of credit,” the BOE said in a statement on Friday. The 2019 stress tests showed the U.K. banking system “resilient to deep simultaneous recessions in the U.K.”
• The Bank of Russia bucked a global trend for interest-rate cuts amid the spread of coronavirus by keeping borrowing costs on hold amid a currency slump. The benchmark interest rate was held at 6%, according to a statement Friday, following 175 basis points of easing in the past year. The decision was forecast by all but one of the 37 economists in a Bloomberg survey. Future rates moves will take into account “actual and expected inflation dynamics” relative to the central bank’s 4% target and economic developments, according to the statement. “Risks posed by domestic and external conditions and the reaction of financial markets” will also be important.
• Authorities ordered all non-essential businesses in Mumbai and across the broader state to shut from midnight through the end of March to contain the spread of the novel coronavirus. Banks will continue to operate, government offices will function with a quarter of their staff, buses and trains will run and food and medicines will be available, Chief Minister Uddhav Thackeray told citizens in a public address Friday. Stock exchanges and certain financial intermediaries will be open.
• India’s state-run generator NTPC Ltd. has approved spending as much as 120 billion rupees ($1.6 billion) to buy government hydropower firms THDC India Ltd. and North Eastern Electric Power Co., according to people with knowledge of the situation.
• The coronavirus outbreak is likely to deepen a slump in India’s steel demand, which has already taken a beating as the country heads for the slowest economic growth in more than a decade. Consumption is set to take a hit in the March quarter, when demand typically peaks, as the virus leads to lockdowns and potential delays in new construction and purchases of pricier goods such as cars and houses, Vishal Kulkarni, Hong Kong-based executive director at Nomura Holdings Inc., said. That’s likely to increase inventories at mills, he said. “Demand will likely slow down for about a quarter, but going into late May and June we could see activities coming back to relatively normal levels,” Kulkarni said in an interview. “We could, however, see steel producers taking this weak demand part as an opportunity to conduct unplanned maintenance.”
• Apple Inc. kept its business rolling through the coronavirus pandemic this week by launching a new iPad Pro and two new Macs. But that doesn’t mean its supply chain is in the clear. Deliveries of the new products will begin arriving on doorsteps next week. However, production of those devices likely started in early January, before the worst effects of China’s virus lockdown in February, according to people familiar with Apple’s supply chain.
• Four U.S. senators sold stock after receiving sensitive briefings in late January about the emerging threat of the coronavirus, sparking concerns that they put safeguarding their private finances before their duty to protect public health. Senator Richard Burr, a Republican from North Carolina, and Kelly Loeffler, a Republican from Georgia, both completed their sales at a time when the Trump administration and GOP leaders were downplaying the potential damage the virus might cause in the U.S. and before drastic stock-market plunges set off by the pandemic. Burr is chairman of the Senate Intelligence Committee, which receives frequent briefings about threats facing the country, and has experience responding to public-health crises. Loeffler – who was appointed to her seat in December after Senator Johnny Isakson announced that he was resigning because of health problems – is married to the chairman of the New York Stock Exchange, Jeffrey Sprecher.
• Traders struggling to keep up with the extreme volatility in U.S. stocks face extra layer of uncertainty on Friday. Options and futures on indexes and equities are scheduled to expire, potentially spurring trading volume as large derivatives positions roll over. While spikes in volume usually cluster around the open and close, providing windows of robust liquidity, large price swings can happen suddenly at any time of the day. The quarterly event known as quadruple witching usually coincides with a rebalancing of major indexes such as the S&P 500 and can spark some of the busiest trading days of the year. This time, S&P Dow Jones Indices has postponed the rebalancing, citing the global market turmoil.
• Casino Guichard-Perrachon SA agreed to sell some of Leader Price’s discount stores to German rival Aldi for as much as 735 million euros ($790 million). Aldi will buy three warehouses and 567 stores for an enterprise value of 700 million euros plus an additional 35 million-euro payment if certain operational goals are reached, Casino said Friday. Aldi will convert the shops to its brand.

*All sources from Bloomberg unless otherwise specified