March 24th, 2020

Daily Market Commentary

Canadian Headlines

• Canadian stocks plunged to their lowest level in almost nine years as investors digested a slew of bad news that signalled a massive slowdown in economic growth for the year. The S&P/TSX Composite Index tumbled 5.3% Monday to its lowest since October 2011, bringing the drop from the Feb. 20 peak to about 37%. Losses accelerated after Ontario and Quebec, the country’s economic heavyweights, ordered the shutdown of all non-essential businesses until the middle of April to fight the coronavirus outbreak. That Canada’s economy will take a major hit from ever-spreading measures to contain the virus is becoming clear. With half a million workers applying for unemployment benefits last week consumer confidence went into a tailspin. The Bloomberg Nanos Canadian Confidence Index recorded its biggest one-week drop ever, falling to the lowest since 2013, when weekly tracking began.
• Canada’s largest oil and gas company said it would cut its capital program this year by 26% as it tries to outlast the plunge in crude prices. Suncor Inc. will lower its capital program by C$1.5 billion ($1 billion) this year to between C$3.9 billion and C$4.5 billion, the company said in a statement. It will also reduce operating expenditures by C$1 billion from C$11.2 billion in 2019, and is adjusting refinery utilization because of the drop in fuel demand. The company is also delaying its target of C$2 billion of incremental free funds flow by two years to 2025. Suncor’s cuts follow $4.4 billion in reductions already announced by other companies in the nation. Canada has been particularly hard hit by the oil crash, as pipeline constraints force steep price discounts even beyond the drop in global benchmark prices. Workers in the remote oil-sands region in Alberta are also bracing for potential outbreaks of the coronavirus.
• Toronto-Dominion Bank priced the largest covered bond on record from a Canadian lender on Friday, days after the country’s central bank widened the range of securities it takes as guarantee for repurchase transactions. Bank of Nova Scotia followed with a similar deal Monday. TD, the country’s second-largest bank by assets, issued C$10 billion ($6.9 billion) of floating-rate covered bonds maturing in 1.5 and 3 years, according to data compiled by Bloomberg. Bank of Nova Scotia priced C$.5.5 billion of 2-year fixed-rate and 3-year floating-rate covered bonds, the data show.

World Headlines

• European stocks extended their gains in morning trade amid expectations that Congress will pass a spending package to help fight the economic impact of the coronavirus. The Stoxx Europe 600 Index was up 5.1% at 10:58 a.m CET, with all sector gauges up more than 2%, led by oil & gas, insurance and basic resources. Italy’s FTSE MIB index gained as much as 6.8%. The country recorded a reduced number of deaths from the virus for a second day, a possible sign that lockdown and containment measures are having an effect.
• U.S. index futures and European stocks rallied alongside Asian shares on Tuesday as investors rediscovered some appetite for risk after global equities hit their lowest level since 2016. The dollar slumped following a 10-day winning streak, and Treasuries slipped. Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all jumped more than 5% to hit their upper trading curbs. If the moves carry through to the underlying gauges it will be the third week running that the S&P 500 has rebounded following a Monday drop.
• Benchmarks in Tokyo, Hong Kong and Sydney all climbed at least 3% while Korean shares soared almost 9% as the government announced measures to stabilize financial markets.  The MSCI Asia Pacific Index rallied as much as 4.8% as of 3:58 p.m. in Hong Kong on Tuesday, set for the most since October 2008. South Korea stocks jumped 8.6% after the nation doubled its emergency funds, while Japan’s blue-chip measure Nikkei 225 rose 7.1%, the most since 2016. Hong Kong’s Hang Seng Index closed 4.5% higher.
• Oil rallied with other risky assets after the U.S. Federal Reserve unveiled a sweeping set of measures to support the world’s largest economy. Futures in London rose for a second session by as much as 6%, to almost $29 a barrel, as the U.S. central bank said it would buy unlimited amounts of Treasury bonds and mortgage-backed securities and also set up programs to ensure credit flows to corporations as well as state and local governments. The move saw U.S. equity futures reach their limit up band. Meanwhile, U.S. Energy Secretary Dan Brouillette said the possibility of a joint U.S.-Saudi oil alliance is one idea under consideration to stabilize prices, though proposals to curb output were criticized by some regulators and drillers in Texas.
• Gold extended a surge toward $1,600 an ounce after the Federal Reserve took unprecedented measures to protect the U.S. economy from the coronavirus shock, with Goldman Sachs Group Inc. saying bullion’s probably at an inflection point and it is time to buy. The precious metal jumped, rallying with risk assets, after the U.S. central bank said on Monday it would buy unlimited amounts of Treasury bonds and mortgage-backed securities to keep borrowing costs low. The Fed also set up programs to ensure credit flows to corporations as well as state governments.
• China’s Hubei province said it will allow transportation to resume for the city of Wuhan on April 8, effectively lifting a mass quarantine over the city where the coronavirus first emerged last December. People in Wuhan will be allowed to leave the city and Hubei province, according to a statement on the provincial government’s website Tuesday. The easing of restrictions comes as Hubei reported that new infections droppedto zero on March 19, a dramatic plunge from the height of an epidemic that’s infected more than 80,000 Chinese and killed over 3,200.
• The euro zone economy is sinking as countries toughen containment efforts, implementing strict stay-at-home policies even as China prepared to lift its lockdown in Wuhan, the city at the center of the original outbreak. Spain reported another surge in fatalities and said almost 40,000 people have been infected. Germany is evaluating a stimulus program to boost the economy after the crisis subsides. President Donald Trump said the American economy can’t remain slowed for too long, declaring that it “was not built to be shut down.” European stocks rose and U.S. equity futures hit limit-up bands as the Federal Reserve unveiled unprecedented measures, taking action as Congress continued to argue over stimulus.
• Chevron Corp. became the latest oil company to take an ax to its budget, cutting capital expenses by $4 billion and suspending its share buybacks. Just weeks ago, Chevron Chief Executive Officer Mike Wirth pledged to keep the buyback through a downturn in oil prices. But this month’s collapse represents such a profound challenge that retaining the shareholder-friendly $5 billion a year instrument was untenable. European rivals Royal Dutch Shell Plc and Total SA this week cut their buybacks until further notice. Exxon Mobil Corp. doesn’t have a program to buy back shares and has yet to announce any changes to its capital spending plan.
• SoftBank Group Corp. plans to sell about $14 billion of shares in Chinese e-commerce leader Alibaba Group Holding Ltd. as part of an effort to raise $41 billion to shore up businesses battered by the coronavirus pandemic, according to people with knowledge of the matter. The Japanese conglomerate is considering raising the remainder of the money by selling a stake in SoftBank Corp., its domestic telecommunications arm, as well as part of Sprint Corp. following its merger with T-Mobile US Inc., said one of the people, who requested anonymity discussing private transactions. The Alibaba stake sale could range from $12 billion to as much as $15 billion, the people said.
• New Jersey froze $920.6 million in spending, including aid to homeowners and cities, and warned of deep hits to the nation’s least-funded public pension system. In a voluntary disclosure note to bondholders, State Treasurer Elizabeth Muoio gave the broadest description yet of how New Jersey, among the most indebted U.S. states, expects to suffer revenue shortfalls and other fallout as a result of the new coronavirus. On March 20, Governor Phil Murphy and his counterparts in New York, Connecticut and Pennsylvania asked President Donald Trump and congressional representatives for at least $100 billion in direct cash to help cover the cost of their coronavirus response. The states represent 16% of the U.S. economy.
• House Speaker Nancy Pelosi unveiled a $2.5 trillion virus economic stimulus plan in a bid to shape negotiations on a Senate measure that stalled on Monday, triggering a sell-off in U.S. equities markets. Pelosi’s 1,400-page bill would have broad implications for the financial sector. It would force lenders to grant a temporary reprieve from mortgage and car payments and credit card bills. It would order the Federal Reserve to provide loan servicers with liquidity to allow borrowers to stop paying their mortgages for up to 360 days. Public housing residents would get a temporary reprieve from paying rent, and student loan borrowers would have $10,000 of debt forgiven.
• The Federal Reserve’s kitchen-sink approach to bond purchases seems to be restoring order to a world where recently only the most liquid Treasuries were in demand. Price discrepancies in the Treasury market are lessening after $225 billion in purchases over the past three sessions and a new pledge for unlimited bond buying on Monday. The spread between more liquid current bonds, known as “on-the-runs” and older so-called off-the-run securities has tightened as more orderly trading returns.
• The U.S. said it will cut assistance to Afghanistan by $1 billion this year and threatened more cuts could come as a breakdown in talks over forming a unity government threatened to derail a U.S.-engineered peace deal. Hours after departing Kabul on Monday, Secretary of State Michael Pompeoissued a statement saying the U.S. “deeply regrets” the failure of President Ashraf Ghani and former chief executive Abdullah Abdullah to form a unity government. He said the U.S. is imposing the $1 billion cut in assistance because of the breakdown, which dates from disputed national elections late last year.
• Elon Musk, the chief executive officer of Tesla Inc. and an outspoken skeptic of the severity of the coronavirus outbreak, donated more than 1,000 ventilators to officials in Los Angeles to meet demand as the pandemic becomes more severe. The billionaire said in a tweet he helped acquire 1,255 of the machines from China last week and arranged them to be air-shipped to Los Angeles. He thanked Tesla staff and customs officials in China and Los Angeles for assistance.
• The U.K. could tighten its lockdown measures if more action is necessary, after Boris Johnson ordered sweeping restrictions to stop people leaving their homes. As the coronavirus pandemic spread across the country, the prime minister approved a ban on all unnecessary movement of people for at least three weeks. Police will break up gatherings and will have the power to fine individuals who defy the tough new laws. On Tuesday, Cabinet Office Minister Michael Gove said further action will be considered and stricter rules could be imposed if necessary. “In three weeks’ time we will be able to say whether or not the path that we followed needs any further intensification,” Gove told Sky News, adding that some restrictions could also be lifted.
• The euro zone is sinking into the biggest economic crisis in its history as measures to contain the coronavirus pandemic bring much of the business world to a standstill. IHS Markit’s measure of private-sector activity plunged to the lowest since the index was started — and the currency bloc was formed — more than two decades ago.
• Spain recorded 514 deaths from the coronavirus on Tuesday, the highest daily increase so far, as the country struggles to contain the outbreak despite strict rules that are keeping people from leaving their homes. There were 2,696 deaths in total, compared to 2,182 the day before, according to the latest health ministry data. The number of confirmed cases rose to 39,673 from 33,089. The country is already in the second week of a lockdown set to continue until April 11, with severe restrictions on mobility, police patrolling the streets and the army helping to move patients.
• Lundin Petroleum AB cut its planned dividend for 2019 by 44% to weather the double crisis of the coronavirus pandemic and a historic rout in oil prices. The board of the Swedish producer decided to reduce the proposed payout to $1 a share from $1.80, it said in a statement on Monday. That’s equivalent to a cut of almost $230 million in total. The company is targeting total cost cuts of $170 million this year, resulting in a 12% reduction of its planned capital investments, the CEO said in a separate letter to shareholders, in which he expressed little hope of oil prices recovering until next year. Lundin may also defer projects that haven’t yet been green-lighted, but maintained guidance for production and exploration activity.
• Activity in Japan’s economy shrank sharply in March, adding to domestic and global recession fears as the impact of the coronavirus slams supply chains, shutters factories and keeps shoppers and tourists at home. A gauge of Japan’s service sector activity slid sharply to a record low of 32.7, according to preliminary purchasing managers data. The au Jibun Bank Japan purchasing managers index for manufacturing also fell to 44.8 in March, indicating the strongest contraction in the factory sector since April 2009. PMI readings below 50 signal activity is contracting.
• Invesco Mortgage Capital Inc., a real estate investment trust that invests in mortgage-backed securities, told counterparties that it was no longer able to fund margin calls. The company said in a statement Tuesday that it couldn’t meet calls received the previous day and probably won’t meet expected further calls in the near term. It’s negotiating forebearance agreements with its financing counterparties, according to the statement.

*All sources from Bloomberg unless otherwise specified