March 2nd, 2020

Daily Market Commentary

Canadian Headlines

• Governor Stephen Poloz is poised for a dramatic farewell at the Bank of Canada before his departure in June. The central banker and his governing council decide Wednesday whether a cut to interest rates is warranted amid mounting concern about the global spread of the coronavirus. Canada’s already fragile economy essentially stalled in the final quarter of last year, and the virus adds to a growing list of impediments that could push Poloz into his first reduction of borrowing costs since mid-2015.
• Canada’s total number of coronavirus cases rose to more than 20 over the weekend as Ontario, Quebec and British Columbia added new cases. Ontario confirmed four new cases on Sunday, bringing the total in Canada’s most populous province to 15. Quebec confirmed its first case in a statement on Friday, and British Columbia updated its total to eight cases on Saturday.

World Headlines

• European equities’ rebound from last week’s sell-off faded quickly amid continued worries over the spread of the coronavirus and the impact on the global economy. The Stoxx Europe 600 Index pared an advance of as much as 2.3% on Monday to trade little changed as of 10:15 a.m. in London. Banking shares led losses among sectors, followed by automakers and travel & leisure stocks. Healthcare and food & beverages were the top-performing subgroups.
• The overnight rally in U.S. stock futures evaporated as the sell-off sparked by the rapidly spreading coronavirus picked up steam Monday. Treasuries surged, sending the 10-year rate closer to 1%. Contracts on the S&P 500 lost more than 1% after wiping out a gain that reached 2.4% on speculation central banks would coordinate to ease monetary policy. Sentiment soured as more cases were reported around the world and the OECD cut its forecast for global growth.
• The attempt at a bounce earlier followed a rare statement on Friday from the Federal Reserve that opened the door to a rate cut based on the “evolving risks” posed by the outbreak. Central banks in Japan and the U.K. followed suit with supportive messages. Investors are weighing the comments against increasing pessimism from economists on global growth, with fears mounting that the virus will trigger more losses after the S&P 500 Index’s worst week since 2008. World growth will sink to levels not seen in over a decade as the outbreak hammers demand and supply, the OECD said.
• Oil rebounded from its worst week since 2008 as the world’s central banks sought to stabilize financial markets, while hopes grew that OPEC+ will deepen output cuts following the coronavirus outbreak. Futures rose as much as 4.4% in New York, after sinking 16% last week. Russia, which is due to meet other OPEC+ members in Vienna this week, is ready to cooperate even though it’s comfortable with current prices, President Vladimir Putin said Sunday. That came after a Chinese manufacturing gauge hit a record low and central bankers across the world pledged action to protect markets.
• After getting caught up in last week’s punishing virus-driven sell-off, gold rebounded on Monday to refresh its haven credentials. The metal advanced after a weekend of negative developments, including a surge in virus cases around the world. With rising expectations that central banks will now act, assets including copper, oil and equities also gained. Friday’s big slump in gold was put down to investors’ forced selling to cover losses elsewhere. “Gold’s fundamentals remain overwhelmingly strong and any near-term price corrections aren’t significant in terms of the bigger picture,” said Gavin Wendt, senior resource analyst at MineLife Pty. Bullion’s retreat last week “was nowhere as bad as the 10%-plus drubbing equity markets took, so it can be argued gold has passed its safe-haven challenge,” he said.
• Gilead Sciences Inc. agreed to buy Forty Seven Inc. for about $4.9 billion to advance into one of the hottest areas of pharmaceutical research: cancer treatments that harness the immune system to fight tumors. Gilead will acquire Forty Seven for $95.50 per share in cash in a transaction cleared by both boards, the Forster City, California-based company said in a statement Monday. The price is a 96% premium to Forty Seven’s closing price Thursday, before Bloomberg News broke the news last week of Gilead’s approach and said the Menlo Park, California-based company had also received interest from other potential suitors.
• Money markets are pricing in a half-point cut in U.S. central bank interest rates this month and have baked in about a percentage point of reductions by the end of July. Bets on easing by the Federal Reserve surged on Monday, while the three-month London interbank offered rate — a key benchmark for trillions of dollars in financial products — plunged by the most since 2008. The moves came after central-bank policy makers around the world indicated that they will act as needed to stabilize financial markets in light of the growing coronavirus threat. The yield on the two-year Treasury note headed for its biggest daily drop in more than a decade and fell to a level unseen since 2016.
• With the world reeling from one of the biggest risk sell-offssince the 2008 global financial crisis, more coronavirus-fueled declines in emerging markets may only be tempered by the prospect of coordinated central bank action or large fiscal stimulus. More than $1.1 trillion was wiped off the value of developing-nation stocks and bonds last week as the economic impact of the coronavirus worsened. Currencies and equities rounded off February with back-to-back monthly declines, while bond spreads widened by the most since August. On Monday, emerging stocks and currencies reversed some of the losses after the Bank of Japan and Italy’s government announced stimulus measures.
• Investors withdrew money from exchange-traded funds that buy emerging market stocks and bonds last week. This was the second 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 $3.73 billion in the week ended Feb. 28, compared with losses of $142.9 million in the previous week, according to data compiled by Bloomberg. This was the biggest weekly outflow in over a year. So far this year, inflows have totalled $569.2 million.
• U.K. Prime Minister Boris Johnson’s government played its first move in trade negotiations with the U.S., insisting it will not give ground on politically sensitive issues including the price of drugs and animal welfare. The Department for International Trade on Monday published its aims for the talks, which are a priority for Johnson after he led Britain out of the European Union to seek trade deals around the world, citing a U.S. accord as a key prize of Brexit. But the negotiations come at a sensitive moment for the so-called special relationship between America and Britain. Links between the two old allies are under strain over a series of issues, most seriously Johnson’s decision to reject President Donald Trump’s request to ban China’s Huawei Technologies Co. from its next-generation broadband networks.
• Uber Technologies Inc. and Lyft Inc., confronted by a growing number of people who say they were assaulted or harassed while using the ride-hailing platforms, have touted their commitment to keeping passengers safe by enacting new screening protocols and releasing data on incidents. But in defending dozens of civil lawsuits in court, the companies can claim they’re not responsible for criminal incidents “outside the scope of the employment relationship,” in part because they consider their drivers independent contractors. That distinction is part of the complex balancing test used in cases involving employer liability for negligence and other civil claims.
• Inflation is the first place where fears about the coronavirus will show up in the hard data for the euro area — oil costs are down as China’s demand for crude has fallen away. That probably lowered euro-area inflation in February and is likely to do so again in March. Underlying price pressure remains weak and the deterioration in the economic outlook raises downside risks for inflation prospects.
• In the weeks before Boeing Co. halted 737 Max production in January, company executives took a hard look at all the personnel who’d be left with little to do when the last jets rolled out of their Seattle-area factory. The conclusion they came to, though, was surprising: The problem wasn’t that there’d be too many mechanics idly milling around for months on end, but rather too few of them. Sure, there’d be a cost to having them on payroll, but what worried managers more was the thought of not having enough workers around when they finally restart output of the Max. That task will be made more difficult by the need to simultaneously maintain the hundreds of Max jets that Boeing built last year but was forced to keep in storage until airlines can start flying them.
• The verdicts may be in but Barclays Plc’s legal troubles stemming from its financial maneuvers during the global financial crash of 2008 are far from over. A British jury on Friday cleared three former Barclays executives of fraud in connection with deals to raise 11.2 billion pounds ($14.3 billion) in equity capital 12 years ago. Now the spotlight turns to a pair of lawsuits and regulatory probes that have been placed on hold for years while the criminal proceedings wound through the courts. Amanda Staveley, the chief executive officer of PCP Capital Partners LLP, is seeking 1.6 billion pounds from Barclays for allegedly cheating her out of profits she claims she should have earned by bringing investors into the bank’s fundraising deal.
• Global central banks promised to act as needed to stabilize markets rattled by the coronavirus as the OECD warned the world economy faces its “greatest danger” since the financial crisis more than a decade ago. In an emergency statement, Governor Haruhiko Kuroda said the Bank of Japanwill “strive to provide ample liquidity and ensure stability in financial markets.” The Bank of England followed by saying it’s working with U.K. and international authorities to “ensure all necessary steps are taken to protect financial and monetary stability.” Already on Friday, Federal Reserve Chairman Jerome Powell opened the door to cutting interest rates to contain what he called the “evolving risks” to economic growth from the virus. The Paris-based OECD now expects the weakest global growth this year since the 2009 recession, and said a ‘long lasting’ epidemic would risk a worldwide recession.
• Nokia Oyj will replace Chief Executive Officer Rajeev Suriafter the Finnish maker of telecommunications gear lost ground to rivals including Huawei Technologies Co. in the race for 5G networks. Pekka Lundmark, the CEO of Fortum Oyj, will take over from Suri at the start of September. Nokia is also set to elect Sari Baldauf as its new chairman in April, replacing Risto Siilasmaa. Suri, 52, struggled during his half-decade tenure as chief to gain a foothold in the all-important market for fifth-generation mobile equipment. The stock bounced as much as 4.2% early Monday on news of his pending departure.
• After spending more than $6 billion to stem the exodus of foreign investors from Indonesian assets last month, Bank Indonesia has signaled it’s ready to splurge more to defend the nation’s battered currency and bonds. The central bank offered to buy sovereign bonds worth 2 trillion rupiah ($140 million) from the secondary market Monday after the yield on benchmark 10-year notes spiked above 7% for the first time since early January. The rupiahwas headed for a 10th straight day of losses, the longest such run since 2013. The rupiah has gone from Asia’s best performer to among the worst in a matter of days as risk-averse investors dumped the nation’s bonds and stocks amid mounting concerns over the impact of coronavirus on the global economy. Bank Indonesia Governor Perry Warjiyo has pledged to continue the central bank’s intervention in the spot and forward currency market and bonds to ease volatility.
• One of the most anticipated public listings of 2020 is in danger of being derailed by the spread of the coronavirus. Airbnb Inc., operator of the largest home-sharing service, has been working toward a stock market debut this year and was looking to start the process around March or April, people with knowledge of the matter said. That kickoff could get pushed back, some of them said. And now, with consumers and businesses canceling travel plans around the globe, Airbnb’s plan is at risk of slipping into 2021.

*All sources from Bloomberg unless otherwise specified