March 3rd, 2020
Daily Market Commentary
- Canadian stocks snapped a six-day losing streak on Monday as investors gained confidence that stewards of the world’s largest economies would act in concert to offset any impact from the spreading coronavirus. The S&P/TSX Composite rose 1.8% to 16,553.26 in Toronto. It was the biggest gain since December 2018. All eleven main industry groups rose, with communication services and utilities among the leaders. Investors are betting the Bank of Canada will cut at least 25 basis points from its benchmark interest rate on Wednesday, swaps trading shows, with some betting on a 50 basis-point reduction. Meanwhile, oil advanced the most in five months amid expectations central banks will move to prop up financial markets and OPEC will curb supplies in response to the virus-driven demand shock.
- Canada’s housing market is poised for a hot spring — with lower mortgage rates likely to offset any major drag from the coronavirus. While a reduced travel from China may crimp sales in Vancouver, and the potential for a recession could set the market back, the possibility of interest rate cuts from the Bank of Canada is likely to fuel further declines in mortgage rates and draw buyers into the market.
- A provincial court’s finding that Canada’s greenhouse gas law is unconstitutional could give legal ammunition to two provinces in their fight against the country’s carbon tax, lawyers close to the case said. The Supreme Court of Canada is scheduled to hear appeals from Saskatchewan and Ontario in Ottawa March 24 and 25, after the provinces lost their challenges to the federal Greenhouse Gas Pricing Pollution Act in appellate courts last year. Prime Minister Justin Trudeau has said taxing greenhouse gas emissions from cars, buildings, and factories is critical to achieving Canada’s targets under the Paris Agreement.
- European shares advanced amid optimism that policy makers, including the European Central Bank, will act to combat the economic impact of the coronavirus. The Stoxx 600 Index rose 2.3% as of 8:17 a.m. in London, with all 19 industry groups higher. Travel and leisure shares, which took the biggest hit in the sell-off through Friday, were among the best performers. Europe’s benchmark tumbled 13% since a record through Friday’s close as the virus spread outside China. The ECB is “closely monitoring” the outbreak and is ready to act to support the economy, President Christine Lagarde said late Monday, while people familiar with the matter said finance ministers from the Group of Seven will speak by teleconference later today. Australia lowered its benchmark by a quarter percentage point.
- U.S. equity futures rose and European stocks jumped as expectations grow that policy makers and governments will act to guard against the economic threat of the coronavirus. Treasuries climbed as the number of infections continued to increase. Contracts for all three of the main American share gauges pointed to more gains at the open on Wall Street after the S&P 500 posted the biggest jump since 2018 a day earlier.
- The main focus of the day looks set to be a teleconference between G-7 finance chiefs about the unfolding coronavirus. Asian stocks pared a gain after a report suggested the group would stop short of specifying monetary and fiscal moves. The yen and gold strengthened.
- Oil extended its rebound from last week’s slump as global policy makers pledged to safeguard markets from the coronavirus, while OPEC and its allies are expected to deepen production cuts. Futures in New York have now recouped more than a third of last week’s 16% plunge in a reversal that’s come amid a broad move upward in financial markets driven by signs major economies will act to soften the impact from the virus. Group of Seven finance ministers and monetary policy officials will speak by teleconference on Tuesday, while OPEC+ meets in Vienna from Thursday.
- Gold turned higher after Monday’s swings as investors gauged a global policy response to the coronavirus crisis. Prices held near $1,600 an ounce as the Group of Seven finance chiefs sought to reassure markets that they’re ready to respond to the coronavirus outbreak. The G-7 officials, including U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, are set to hold an emergency conference callon Tuesday to discuss appropriate action. Some policy makers have already stepped up, with Malaysia and Australia cutting interest rates. The European Central Bank also said it’s ready to take appropriate measures, echoing statements from the U.S. Federal Reserve, the Bank of Japan and Bank of England.
- U.S. laboratory equipment maker Thermo Fisher Scientific Inc. agreed to buy Qiagen NV, a Dutch maker of tests for diseases including cancer and the new coronavirus, for about 9 billion euros ($10 billion) in the biggest health-care acquisition so far this year. Investors will get 39 euros in cash for every Qiagen share, Thermo Fisher said Tuesday. That’s 23% higher than Monday’s closing price. Qiagen also sells products for food and forensic testing. Bloomberg earlier reported the companies were nearing a deal after reviving discussions that broke off late last year. The purchase would rank as one of Thermo Fisher’s largest after the company spent $13.6 billion for Life Technologies Corp. to gain DNA-testing capabilities in 2014. Deals have heated up in the industry after a slow start to the year, with this coming one day after Gilead Sciences Inc. agreed to buy Forty Seven Inc. for about $4.9 billion to advance into cancer treatments.
- Group of Seven finance chiefs will hold a rare conference call on Tuesday and the Bank of England’s governor said policy makers were crafting a “powerful and timely” response to the outbreak. Stocks surged in Europe and U.S. equity futures gained. Australia cut rates to a record low and U.S. President Donald Trump urged the Federal Reserve to “ease and cut rate big.” Malaysia reduced its benchmark interest rate while the Fed, Bank of Japan and European Central Bank all pledged to act. Infections rose again in Iran and South Korea. British businesses were warned that as many as a fifth of workers could be forced off sick if the U.K. is hit by a widespread outbreak.
- BlackRock Inc. cut its recommendation on global equities to neutral on concerns the coronavirus is threatening corporate earnings and crimping economic growth. “The coronavirus outbreak is disrupting economic activity and supply chains,” BlackRock Investment Institute members, including Jean Boivin, Mike Pyle and Elga Bartsch, wrote in a note dated March 2. “The outbreak also poses risks to corporate earnings, in our view.” They had previously been overweight on stocks. The world’s biggest asset manager is responding to increasing fears about the epidemic’s impact on the global economy. Stocks around the world suffered their worst drop since the 2008 financial crisis last week as the number of new infections surged, spreading to Italy and France, and major companies warned about the damage to their profits.
- Governments struggling to contain the global economic fallout from the coronavirus outbreak face mounting calls to unleash a major fiscal stimulus that could help cushion the blow. While some investors are already betting that the epidemic will warrant the first joint emergency monetary easing since 2008, a gathering throng of analysts is asking if budget aid in countries from China to Germany wouldn’t be more effective. Such a prospect would raise memories of action by the Group of 20 in 2009 as they raced to stem the financial crisis, with what they described at the time as an “unprecedented and concerted fiscal expansion” pledged to total $5 trillion. It’s not clear if there’ll be a similarly synchronized response to the virus, though pressure for some sort of global effort is starting to grow and individual governments are already taking action.
- Japan has started a review of its controversial policy of promoting coal-fired power plants to developing nations, a process it aims to complete by June, according to the Ministry of Economy, Trade and Industry. The review will be conducted jointly with the ministries of finance, foreign affairs and environment, according to Ryo Minami, the director-general of METI’s oil, gas and mineral resources department. As investors and governments begin prioritizing the fight against climate change, Japan, along with China, has come under increasing criticism for support of the most-polluting fossil fuel in power generation and for remaining a big financier of new plants in Southeast Asia.
- Bank of England Governor Mark Carney said policy makers are crafting a “powerful and timely” defense of the world economy against the spreading coronavirus as those from the Group of Seven nations prepared to hold an emergency conference call. Under pressure from investors to match recent pledges of economic support with action, G-7 finance ministers and central bankers including Carney and Federal Reserve Chairman Jerome Powell, will discuss their virus response around 7 a.m. Washington time. A statement is expected afterward although it is unlikely to pledge specific actions by governments or central banks, according to people familiar with the planning who spoke on condition of anonymity. The officials will instead acknowledge the economic risk posed by the virus and stress their readiness to act to combat it.
- British businesses were warned as many as 20% of their workers could be forced to take time off during peak periods of infection if the U.K. is hit by a widespread outbreak of coronavirus. The U.K. government published its plan for dealing with the disease on Tuesday, including an estimate that in a worst-case scenario a fifth of the workforce — more than 6 million people — could be absent. This would have knock-on effects, as others would be forced to take time off to care for those who are ill, or to look after children if schools are closed. Such a peak period of infection would be likely to last around three weeks, the government said. Prime Minister Boris Johnson unveiled a package of emergency measures to tackle coronavirus on Tuesday after he was criticized for not doing enough to prepare for the spread of the disease. He said he is ready to close schools and cancel public events, though health officials are uncertain whether either would be necessary.
- Ryanair Holdings Plc Chief Executive Officer Michael O’Leary said the European discount airline is in talks with Boeing Co. about a follow-on order for the U.S. manufacturer’s grounded Max model. While the Max has been idled worldwide for close to a year after two fatal crashes, Ryanair is in “active discussions” to buy more of the narrow-body planes, O’Leary said Tuesday in an interview with Bloomberg TV in Brussels. A new deal from Ryanair would provide a boost for Boeing as it grapples with remaining issues to get the Max flying again. The Irish carrier is one of the biggest customers for the crisis-hit model with 210 orders, though it has yet to take any deliveries, raising the possibility of it switching loyalties to Airbus SE.
- ING Groep NV, the biggest Dutch lender, has been considering a sale of its Turkish business, people with knowledge of the matter said. ING has held preliminary talks with potential advisers about the possibility of divesting Istanbul-based ING Bank AS, according to the people, who asked not to be identified because the information is private. It also approached a local competitor late last year to gauge their interest in a deal, though it isn’t currently running a formal sale process, one of the people said.
- Reserve Bank of India Governor Shaktikanta Das reiterated there’s room to cut interest rates amid new risks to economic growth from the spread of the coronavirus. Inflation, which had kept the central bank from cutting interest rates since December, is expected to moderate, Das said in an interview in Mumbai Tuesday. A rate cut is one policy option, with the other being supporting the market through liquidity measures, he said.
- Chinese independent oil refinery Panjin Haoye Chemical has bought U.S. crude in what’s likely to be among the first of a resumption in purchases after Beijing relaxed tariffs imposed during the trade war. The shipment, which includes the Mars grade, will arrive in China in May, said traders who asked not to be identified. The Chinese government said last month that domestic firms importing American commodities would be allowed to apply for tariff waivers from March 2. Tariffs on U.S. crude were set at 5% when they were introduced in September but were halved in mid-February.
- Surging rate-cut expectations and a desperate lunge for safe assets amid the coronavirus outbreak have earned the bond market a lot of fans in recent weeks. The resulting rally is creating a few detractors, too. A growing chorus of strategists and money managers is voicing concern as investors charge into government debt at seemingly any price. The fear is they’re exposing themselves to interest rate risk like never before, risking a precipitous slump on even a modest bump in yields. One breakthrough in the fight against the illness, or a sign the global economy is recovering faster-than-expected, might be all it takes.
- Chevron Corp. plans to pay out as much as $80 billion in dividends and share buybacks over the next five years as Chief Executive Officer Mike Wirth aims to reassure investors the the oil giant can offer attractive financial returns even as customers and policymakers demand lower-carbon fuels. The U.S. oil giant will cut costs by $2 billion and hold annual capital spending to no more than 10% above current levels, San Ramon-based Chevron said Tuesday in a statement. Chevron’s plan is the latest sign of Big Oil’s high-wire balancing act to reinvest in future production, reward shareholders at the same time as working through an energy transition that may spell the end of fossil fuel growth within a decade. To meet these challenges, Wirth is investing in Permian Basin shale, cutting expenses and holding back on megaprojects while making small bets on novel clean-fuel technologies.
*All sources from Bloomberg unless otherwise specified