March 23rd, 2020
Daily Market Commentary
- Endeavour Mining Corp. agreed to buy rival Semafo Inc. for about C$1 billion ($690 million) in shares, less than three months after its last attempt at dealmaking fell apart. Both producers mine in West Africa and the combination will create a stronger company with better access to capital, they said in a statement Monday. Endeavour abandoned an attempt to buy rival Centamin Plc this year after an acrimonious process and the company also earlier tried to buy Acacia Mining Plc. Endeavour agreed to pay 0.1422 of its own stock for every Semafo share, representing a 55% premium based on March 20 closing prices. Endeavour said its biggest shareholder, billionaire Naguib Sawiris’s La Mancha Holding S.a.r.l., has committed to invest $100 million in the pro-forma group.
- Canada won’t send athletes to the 2020 Tokyo Olympics unless the games are postponed until the coronavirus is under control. The Canadian Olympic Committee and Canadian Paralympic Committee have “urgently” called on the International Olympic Committee and other organizers to postpone the event by a year. “While we recognize the inherent complexities around a postponement, nothing is more important than the health and safety of our athletes,” they said, adding it’s not safe for its athletes and runs counter to public health advise for Canadians. “We are in the midst of a global health crisis that is far more significant than sport.”
- The Stoxx Europe 600 slumped, led by health-care shares as the continent’s leaders scrambled to enforce more curbs on people’s movements and Italy began shutting most industrial production. Bloomberg’s dollar index reversed an earlier drop even as the Fed and counterparts beefed up operations to ease access to the greenback worldwide. Treasuries gained while Brent crude extended losses after its 20% decline last week. Core European bonds climbed.
- Stocks dropped globally along with American futures while credit markets sagged after the coronavirus death toll surged and U.S. Congress failed to agree on a $2 trillion stimulus plan. Government bonds rose. S&P 500 and Nasdaq 100 futures dropped to their daily limits in early trading before trimming those declines as the session progressed. Investors are beginning another dramatic week, digesting slashed economic forecasts and the struggles of European countries to curb the pandemic, with 2,000 deaths over the weekend in Italy and Spain alone. Warnings about the pandemic crippling the world’s biggest economy and triggering a global recession are growing as cities from New York to Los Angeles all but shut down and cases rise rapidly.
- Equities fell across most of Asia, where India’s benchmark plunged a record 13% while the rupee sank to the lowest ever amid moves to lock down widespread areas of the second-most populous country.
- Oil dropped toward the lowest level since 2003 as prospects for a deal between OPEC and Texas to limit production appeared to fade, while a U.S. coronavirus rescue package ran into political delays. Futures in London fell around 4% to near $26 a barrel, while West Texas Intermediate rose after the April contract expired Friday. Texas Railroad Commissioner Ryan Sitton landed a rare invitation to attend OPEC’s June meeting on Friday, but just hours later hopes for an agreement began to unravel as his call to curb output was criticized by regulators and drillers.
- Gold dropped again as investors buckled in for yet another volatile week, with the dollar extending its record-setting ascent after the global death toll from the pandemic surged and governments battled to address the mounting crisis with ever-more Draconian measures. The traditional haven has been struggling for grip amid the turmoil, with many investors turning instead to the greenback for refuge as stock markets tumble and margin calls spread. On Monday, S&P 500 futures hit limit down, and Asian equities fell. The number of virus cases topped 325,000 worldwide.
- Democrats blocked the U.S. Senate from advancing an economic rescue package and European leaders scrambled to enforce restrictions to prevent health-care systems from being overwhelmed as deaths surged across the region. German Chancellor Angela Merkel went into quarantine. President Donald Trump said coronavirus measures shouldn’t be “worse than the problem itself,” while Japanese Prime Minister Shinzo Abe said a postponement of the Olympics may be inevitable. The crisis engulfing the aviation industry deepened.
- Airbus SE withheld its dividend and extended credit lines, lifting liquidity about 50% to 30 billion euros ($32 billion) after the coronavirus pandemic pushed its airline customers to halt flights and stop ordering planes. The European manufacturer also tore up its earnings guidance for the year in an announcement Monday and said its vast network of suppliers are in dire need of government support, though the company itself isn’t yet seeking a bailout. The global aviation industry has been among the sectors hit hardest by the health crisis, with airlines pushing back against taking existing deliveries, let alone purchasing extra jets. Airbus plans to continue production for the moment but said that “operational scenarios” have been identified and could be activated depending on the spread of the virus.
- Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the fifth straight week of outflows. Outflows from U.S.-listed emerging market ETFs that invest across developing nations as well as those that target specific countries totaled $2.94 billion in the week ended March 20, compared with losses of $4.01 billion in the previous week, according to data compiled by Bloomberg. So far this year, outflows have totalled $6.76 billion.
- Masayoshi Son is making his biggest play yet to silence doubters. On Monday, the Japanese billionaire unveiled an unprecedented $41 billion plan to sell off assets and shore up SoftBank Group Corp.’s crumbling market value in the face of the coronavirus pandemic. SoftBank aims to sell assets to raise as much as 4.5 trillion yen ($41 billion) over the coming year to buy back stock and slash debt — an amount equivalent to almost its entire market value last week. The scale of the endeavor surprised investors, sending the Japanese firm’s stock up 19%. Yet that’s a fraction of the capitalization the investment house has lost since its 2020 peak, underscoring persistent concerns that tumbling technology sector valuations will damage Son’s debt-laden company.
- U.S. banks have plenty of capital piled up that can let them boost lending as clients come calling to cope with economic disruption caused by the coronavirus. Capital buffers at the biggest U.S. banks should give them the ability to increase lending by $1.6 trillion, according to Bloomberg calculations. By deploying their excess capital, the eight largest lenders alone could expand their balance sheets by $1 trillion. The Federal Reserve has encouraged the nation’s leading banks to use so-called management buffers — capital that’s in excess of required regulatory minimums — to boost the economy. Firms can also dip into capital conservation buffers, a move that would restrict payouts to shareholders.
- Global central banks continued to pump liquidity into financial markets Monday with early reaction hinting at an easing in funding pressures. The Bank of Japan allotted almost $35 billion to banks in a new daily seven-day swap auction, following on from last week’s $32 billion in beefed up seven- and 84-day operations. Three-month dollar-yen cross-currency basis tightened, showing a small drop in the premium to access dollar floating cash flows from recent extremes. Still , the gauge remained at historically elevated levels, suggesting that money markets were far from ready to return to normalcy. Funding tensions also showed some signs of cooling in the euro area and U.K. with the daily dollar swap auctions of the European Central Bank and Bank of England seeing only a single bidder. The BOE and ECB alloted $5 million and $20 million respectively, significantly below prior allocations of $15.5 billion and $36 billion. The Swiss National Bank alloted $711 million.
- With German Chancellor Angela Merkel isolating herself, the effort to contain the spread of the coronavirus in Europe became even more complicated as leaders grapple with enforcing increasingly severe measures to control the pandemic. After coming into contact with a doctor who later tested positive, the German leader will be forced to chair an emergency cabinet meeting Monday via video conference. The gathering is to sign off on a plan to borrow as much as 350 billion euros ($370 billion) to counter the economic impacts of the virus. At the European Union level, finance ministers are expected to convene via video conference to sign off on temporarily scrapping budget rules. The move would pave the way for enormous spending to prop up economies and show citizens that their personal sacrifices will be worth it.
- The U.K. government stepped in to shore up the country’s rail operators after Prime Minister Boris Johnson warned Britons they face “tougher measures” to fight the coronavirus outbreak, including a potential full lockdown if they continue to ignore calls to stop social gatherings. The Department for Transport said on Monday that it will take on the revenue and cost risk for the nation’s rail services for six months, with operators continuing to manage day-to-day services for a “a small predetermined management fee.” With the U.K.’s weekend newspapers full of reports about people meeting in parks and traveling to coastal towns, the prime minister said his government may be forced to take more stringent methods to enforce social distancing, and will consider options over the next 24 hours. The U.K. death toll surged to 281 on Sunday from 177 on Friday, with total cases rising above 5,500.
- Singapore will deliver a supplementary budget and bring forward its monetary policy decision as authorities ramp up support for an economy heading toward recession. The Monetary Authority of Singapore said Monday it will publish its policy statement on March 30. The review is usually done twice a year, in April and October. Separately, the government said Finance Minister Heng Swee Keat will deliver a statement in Parliament on March 26 on extra fiscal support measures for workers, businesses and households. This comes just over a month after he presented a budget that pledged S$6.4 billion ($4.4 billion) to help fight the virus and cushion the blow for businesses and households.
- India is facing an economic shock as many parts of the country go into lockdown and the government will have to spend more and abandon fiscal deficit targets to cope, analysts said. Growth may weaken to 3% in the first three months of this year from 4.3% estimated previously, according to Oxford Economics, while Jefferies sees room for the government to spend $18 billion to support activity. Still, in ANZ’s view expansion is set to remain weak over the next few years. The readings about Asia’s third-largest economy come as policy makers are focused on ensuring Indians have cash in hand to buy essentials as more cities are locked down to prevent the spread of the virus, and countries around the world race to ease fiscal and monetary policies to shore up their economies.
- Republicans and Democrats in Congress stumbled in their attempt to engineer a quick jolt to a sinking economy with a $2 trillion stimulus despite the rising coronavirus death toll, plunging financial markets and dire predictions of a deep recession. Negotiations to break the impasse over the stimulus legislation continued into the night Sunday after Senate Democrats voted to reject Majority Leader Mitch McConnell’s latest version of the plan, which had been the product of frenzied bipartisan negotiations a day earlier.
- PG&E Corp. has agreed to plead guilty to felony involuntary manslaughter charges for its role in starting the deadliest wildfire in state history. The indictment in Butte County, where 85 people died during the 2018 Camp Fire, charges the company with 84 counts of manslaughter and one count of unlawfully causing a fire. The company disclosed the charges Monday morning in a regulatory filing. It filed for chapter 11 protection last year, citing billions of dollars in liability costs it faces because of its role in sparking wildfires in 2017 and 2018 that collectively killed more than 100 people and destroyed roughly 15,700 homes. The grand jury’s indictment caps a yearlong criminal investigation led by Butte County District Attorney Mike Ramsey, with assistance from the office of California Attorney General Xavier Becerra. It examined the role PG&E’s power lines played in sparking the Camp Fire, which destroyed the town of Paradise.
- The German government has signed off on taking on billions in new debt as part of an unprecedented package totaling 750 billion euros ($800 billion) to cushion the fallout from the coronavirus pandemic. Chancellor Angela Merkel’s cabinet signed off on the spending plan in an emergency meeting on Monday, according to a government spokesperson. The German leader was forced to chair the gathering via video conference after quarantining herself at home on Sunday following earlier contact with a doctor who later tested positive, taking her out of the public eye just as she asserts herself into the crisis.
- Corporate borrowers worldwide — mostly from the U.S. — drew down about $71 billion from revolving credit facilities last week, a near seven-fold jump from the week before. Since March 9, companies have drawn $82 billion of revolvers, according to data complied by Bloomberg News
- The crisis engulfing the aviation industry deepened after some of the world’s biggest international carriers announced drastic measures to cope with the coronavirus outbreak, with giants Emirates and Singapore Airlines Ltd. among the latest to slash flights. Dubai-based Emirates, the world’s largest long-haul airline, will stop flying passengers for two weeks starting March 25 because of travel restrictions. Singapore Airlines said Monday it’s cutting 96% of its capacity through April, mirroring an announcement by Hong Kong’s Cathay Pacific Airways Ltd. on Friday.
*All sources from Bloomberg unless otherwise specified