March 31st, 2020

Daily Market Commentary

Canadian Headlines

• Canadian equities bounced higher Monday afternoon as investors saw glimmers of optimism in efforts to deliver rapid virus testing. The S&P/TSX Composite Index rose 2.8%. Ten of eleven sectors advanced, with real estate being the only laggard. Quebec-based Cominar Real Estate Investment Trust dropped 11% after withdrawing guidance amid the spread of coronavirus. Energy stocks shook off weakness in crude prices, with oil-sands producers including MEG Energy Corp., Canadian Natural Resources Ltd. and Suncor Energy Inc. all up double-digits. Oil tumbled to an 18-year low as coronavirus lockdowns cascaded through the world’s largest economies, while Western Canadian Select fell below $4 earlier Monday.
• Millions of Canadians may soon find themselves unable to pay their bills as the Covid-19 shutdown puts them out of work, with no certainty to when normal activity will resume. A new survey by Nanos Research Group for Bloomberg News shows that nearly one in five Canadians are at risk of missing a major payment in the next four weeks. That includes payments for a mortgage, loan, rent or credit card. Those 18 to 34 years old are the most vulnerable, with 26% saying they are prone to missing payments.

World Headlines

• European stocks climbed on the final day of their worst quarter on record, boosted by signs of stabilization in the coronavirus outbreak in Italy. The Stoxx Europe 600 Index was up 0.9% as of 12:21 p.m. London time, halving earlier gains and on track to post its biggest quarterly slide since since the creation of the index in 1998. The majority of the 19 industry groups advanced, led by oil stocks and travel and leisure shares — the worst hit in the rout since late February.
• U.S. index futures fluctuated on Tuesday while European stocks headed for a fifth increase in six sessions amid debate over whether the market meltdown has ended given the continued spread of the coronavirus. Treasuries and the dollar advanced. S&P 500 contracts turned from losses to gains overnight as political leaders contemplate a fourth round of stimulus, but they struggled to stay in the green. Oil producers Exxon Mobil Corp. and Occidental Petroleum Corp. jumped in the premarket as crude rebounded after a three-day slump. Signs of a recovery across equities worldwide have arrived at the end of their worst quarter since 2008. That puts investors at a crossroads, questioning whether extraordinary stimulus by countries and central banks can counter further retrenchment of firms and consumers as the outbreak spreads. New York City, which is emerging as the new epicenter of the pandemic, reported a 16% increase in deaths in six hours. Italy and the Netherlands are considering extending lockdowns, and Spain’s 849 deaths were the most in one day for the country.
• Equities were mixed in Asia, where China had stronger-than-anticipated manufacturing data. A measure of European corporate-credit stress eased. The dollar rose at least 1% versus the euro and three other major peers. The yen sank as the end of Japan’s fiscal year brought positioning adjustments. The ruling party proposed the country’s biggest-ever stimulus package worth 60 trillion yen ($554 billion).
• Oil clawed back some losses as Chinese manufacturing data beat expectations, but futures were still heading for the worst quarter on record as the physical market showed further signs of collapse. Futures in New York were higher on Tuesday but crude is still down 65% since the end of December. While Brent and West Texas Intermediate futures are holding up above $20 a barrel, in the world of physical crude, where traders buy and sell actual barrels, prices continue to be in freefall. The price difference between where the paper market trades and the physical market has widened to reach multi-decade highs in some cases, suggesting that financial flows are supporting the futures market.
• Gold is heading for a sixth straight quarterly gain, the longest stretch since 2011, as investors clamor for the traditional haven amid concerns the coronavirus pandemic is set to send the global economy into recession. It’s been a volatile month as the unfolding health crisis roiled world markets, prompting some investors to sell gold to raise cash to cover losses elsewhere, while global supply chain disruptions created a squeeze in futures as sellers’ capacity to meet commitments to deliver bullion was thrown into doubt. With that crunch easing, traders are now weighing the effectiveness of measures aimed at mitigating the economic hit from the virus.
• Remote-work software maker Citrix Systems Inc. is the best performing stock in the S&P 500 this year as investors bet shuttered offices will help deliver lasting benefits. Citrix shares have jumped 32% in 2020 to a record, beating out popular coronavirus picks like Regeneron Pharmaceuticals Inc. and Clorox Co. The stock is up 41% in March, on track for its best month since 2003. Citrix’s software allows employees to securely access their employer’s networks when working outside the office. For the 31-year-old company in the midst of transitioning to a subscription model and more cloud-based offerings, the timing is critical.
• The U.K. government is facing renewed calls to speed up testing of patients and health care workers for the coronavirus, as the outbreak spreads. Ministers and officials were challenged on Monday to explain why they said 10,000 tests were being carried out every day but only 7,000 people had received them. The concerns over testing rates came after a week of lockdown measures, which officials suggested were starting to make a difference to slowing the spread of the virus. “People will rightly say, why wasn’t this all in place?” Transport Secretary Grant Shapps told BBC radio on Tuesday when challenged on why the U.K. is lagging other countries on testing. “The unprecedented nature, the global nature of this, and the pressures everyone’s aware of on the NHS, means to scale this up it’s literally been a military-scale operation,” he said, adding that three new testing centers have just opened to boost capacity.
• The coronavirus pandemic may cause dividend payments by European companies to halve with earnings in 2020, threatening a major source of income for investors in the region’s equities, according to Citigroup Inc. With an increasing number of companies cutting, suspending or reviewing their payouts, Citigroup strategists led by Robert Buckland say more could be on the way as a 1.6% contraction in global growth would cut European earnings by 50%. “Dividend per share doesn’t usually fall as much as EPS, but high payout ratios, along with corporate prioritization of balance sheets and employees, may mean European dividends also halve,” Buckland wrote, noting that the payments to shareholders fell by a third during the 2008 financial crisis.
• Spain had its deadliest day yet, while Italy is discussing an extension of lockdown measures into May. New York City, which is emerging as the new epicenter of the pandemic, reported a 16% increase in deaths in six hours. U.S. President Donald Trump said a national stay-at-home order is “pretty unlikely.” China said it had 1,541 asymptomatic cases of coronavirus, providing a better picture of the scale of the country’s epidemic. Japan’s ruling party proposed the country’s biggest-ever stimulus package, valued at $554 billion, while U.S. leaders are preparing for a fourth round of stimulus. Goldman Sachs Group Inc. expects the U.S. economy to experience a far deeper slump than anticipated and Hong Kong retail sales plunged by a record.
• Ford is delaying its planned restart of plants in the U.S. and Mexico and isn’t setting new dates for resuming production, according to a statement. Co. had previously announced plans to resume production at a factory in Mexico on April 6 and at several U.S. factories on April 14
• The Bank of Japan went to such lengths to ensure local banks had enough dollars to weather a global liquidity crunch that it may have inadvertently contributed to a surge in repo-market rates to a record. The BOJ offered Japanese banks cheap access to dollars, and encouraged them to borrow as much as they wanted, according to people with knowledge of the matter. When the lenders complied — to the tune of $185 billion net and counting — the collateral they posted was sucked straight out of the repurchase markets, another key link in the financial plumbing.
• Mitsubishi UFJ Financial Group Inc. is booking an impairment charge of about 360 billion yen ($3.3 billion) on its holdings in three Southeast Asian banks after their shares fell. MUFG will book a charge of about 212.8 billion yen on its controlling stake in PT Bank Danamon Indonesia and 130.5 billion yen in Thailand’s Bank of Ayudhya Pcl in the fiscal year that ends today, Japan’s biggest lender said in a statement Tuesday. It will also log a writedown of about 20 billion yen in Security Bank Corp. of the Philippines, a person with knowledge of the matter said.
• As a young researcher in the late 1980s, Michael Kinch wanted to solve the biggest medical puzzle of the day: how to design an HIV vaccine. But dozens of well-funded labs were attacking the problem, a solution seemed easily within reach, and Kinch moved on. More than 30 years and 30 million deaths later, there’s still no approved HIV vaccine — a cautionary tale for anyone expecting a coronavirus vaccine within the next year, according to Kinch, a former drug developer who’s now associate vice chancellor at Washington University in St. Louis.
• The White House and congressional Democrats are preparing for a fourth round of economic stimulus to get the U.S. through its coronavirus outbreak, even while they’re still arguing over the $2 trillion measure President Donald Trump signed Friday. White House officials have compiled lists of requests from government agencies totaling roughly $600 billion, according to people familiar with the matter. The proposals include more state aid as well as financial assistance for mortage markets and the travel industries. House Speaker Nancy Pelosi told reporters on Monday that Democrats are “collecting information, taking inventory” on what might be needed in another round of stimulus. She also indicated states and local governments need more federal assistance, and said there could be further direct payments to everyday Americans.
• Latin America is poised to face months of heightened inflation uncertainty as the coronavirus pandemic forces governments to overhaul data gathering methods. Statistics agencies across the region are grappling with the challenge of collecting prices as many brick-and-mortar establishments shut their doors and researchers can’t go into the field due to restrictions on the movement of people. The obvious alternative — seeking prices online — comes with a number of drawbacks including low penetration of e-commerce in developing countries, which may cause inflation data distortions.
• A group of sixteen banks will have to provide $23 billion of loans to T-Mobile US Inc. in order to allow the mobile carrier to close its planned acquisition of Sprint Corp., after the Covid-19 outbreak disrupted plans to sell the debt to third-party investors. The banks were formally notified Monday that they will need to make the funds available on April 1, so that the two companies can finalize their long-awaited merger, according to people familiar with the matter, who asked not to be identified because the conversations are private. The banks will have to come up with the loan at a time when they’re already being hit by requests from companies to draw billions of dollars from revolving credit facilities. Companies in the Americas have tapped lenders for more than $190 billion through existing revolvers or new short-term loans since March 9, according to data compiled by Bloomberg.
• Abu Dhabi Commercial Bank PJSC has more than $1 billion of exposure to troubled hospital operator NMC Health Plc, potentially putting one of the Middle East’s biggest financial institutions on the hook for losses on the debt, people familiar with the matter said. The state-owned lender is currently seen as one of the biggest creditors to NMC, according to the people, who asked not to be identified because the information is private. HSBC Holdings Plc, JPMorgan Chase & Co. and Standard Chartered Plc also have large outstanding loans to the Abu Dhabi-based company, the people said. Some of the lenders are in talks to set up a committee to discuss ways to recover funds from NMC, according to the people. The company’s known debt pile has more than tripled in recent weeks to $6.6 billion, up from the $2.1 billion reported at the end of June, after it successively uncovered borrowings that hadn’t been disclosed to the board.

*All sources from Bloomberg unless otherwise specified