March 4th, 2020
Daily Market Commentary
- Toronto home prices surged in February, and sales jumped from a 10-year low, as buyers stampeded back into the market. The benchmark price climbed 10.2% in February to C$846,100 ($632,550), the Toronto Regional Real Estate Board said Wednesday. The index gained 2.2% from January, the biggest increase since April 2017. Most segments posted almost double-digit price growth with condos rising about 12% over the year, the board said. The number of transactions jumped 46% from February 2019, which was a 10-year sales low as the market struggled with tougher mortgage rules and higher interest rates. The opposite is happening this year, with mortgage rates declining as bond yields drop amid the coronavirus and the Bank of Canada expected to cut interest rates on Wednesday.
- European shares extended gains after Tuesday’s biggest jump in a month, as investors focused on global policy response to the virus outbreak and a surprise comeback for Joe Biden in the U.S. presidential primary. The Stoxx Europe 600 Index climbed 0.8% as of 9:19 a.m. in London, tracking a strong rally in U.S. index futures after Biden’s Super Tuesday victories blunted the chance of a Bernie Sanders nomination that had unsettled some investors. All industry groups in the Stoxx 600 rose except travel and leisure shares, the worst hit in the recent sell-off. Miners were the best performers as base metal prices bounced.
- American stock-index futures climbed with European equities on Wednesday as investors took in surprises from the U.S. Presidential primary and expectations of global policy responses to the coronavirus after the Federal Reserve’s emergency rate cut. Treasury 10-year yields slipped further after breaking below 1% for the first time in 150 years. Contracts on the S&P 500 rebounded from a tumble on Tuesday, when the 50 basis-point Fed move failed to ease concerns about an economic downturn. Moderate Joe Biden’s surprise comeback hours later in the Super Tuesday race for the Democratic Party nominee took the lead from Bernie Sanders that had unsettled some investors
- A volatile session in Asia left stock markets closing mixed. Hong Kong and China PMI data fell to record lows, underlining impacts of the virus on the region’s commerce. The euro dipped after posting its best four-day rally since January 2018. The pound sank as traders began to price in a possible emergency rate cut by the Bank of England.
- Oil rose for a third day after Saudi Arabia pushed for a deeper output cut than OPEC’s technical committee recommended a day earlier. The Saudis are looking for a cut of more than 1 million barrels a day, after the Joint Technical Committee suggested an supply reduction of 600,000 to 1 million barrels a day during the second quarter, according to delegates. Ministerial meetings are scheduled for Thursday and Friday in Vienna. Trading has been volatile in recent days, with some consultants and banks forecasting a decline in oil demand for the first time since the financial crisis. The Federal Reserve implemented an emergency half-percentage point interest-rate cut on Tuesday.
- Gold just got a powerful boost from the Federal Reserve, with bullion extending gains in Asia after the U.S. central bank’s emergency, virus-driven rate cut set off a collapse in 10-year Treasury yields to an all-time low. Bullion prospers from low rates, and more easing is expected from the Fed and other central banks as policy makers seek to blunt the economic fallout from the health crisis. Money markets point to the Bank of Canada jumping into action next with a cut expected at its scheduled meeting later Wednesday.
- Investments in U.S.-listed fixed income exchange traded funds expanded more than sixfold last week for the fifth straight week of inflows. Government bond ETFs led the inflows. Broad bond-market ETFs had the second biggest change from the previous week. Net inflows to ETFs totaled $6.12b in the week ended March 3, including the effect of leveraged funds, compared with $951.3m the prior week
- Kinder Morgan Inc. must convince a Texas federal judge it’s keeping its promise to minimize harm to an endangered songbird’s nesting grounds or face a court-ordered halt to work on its $2 billion Permian Highway Pipeline. The company began clearing 177 miles (285 kilometers) of right-of-way through the environmentally sensitive Texas Hill Country on Feb. 15, after U.S. District Judge Robert Pitman in Austin agreed the company was complying with restrictions in its federal permits. The permits let the company bulldoze a 125-foot-wide swath through the century-old oaks and junipers favored by the endangered golden-cheeked warbler, which nests only in central Texas, and trench sensitive aquifers that supply drinking water to millions of residents.
- Saudi Arabia is urging OPEC+ to agree to an oil-output cut of more than 1 million barrels a day to compensate for the hit to demand from the global spread of the coronavirus, delegates said. The Saudi push reflects mounting concern that growth in fuel consumption could be wiped out this year as the raging outbreak wreaks havoc on the world economy. Following oil’s biggest weekly slump since the 2008 financial crisis, ministers from the Organization of Petroleum Exporting Countries and its allies are descending on Vienna for a crucial meeting on deepening supply curbs. The Saudi suggestion represents a larger cut than that put forward by the group’s technical committee on Tuesday. The panel recommended a 600,000 to 1 million-barrel-a-day reduction in the second quarter, more ambitious than curbs mooted in February but still short of some estimates of the demand loss.
- Donald Trump’s response to the coronavirus outbreak and the damage it’s inflicting on global markets is most notable for what he hasn’t done. The president has so far balked at pursuing a major fiscal plan to counter the market turmoil stemming from the virus’s spread. He said Tuesday it’d be a good time for Congress to cut income taxes again but hasn’t made his own proposal, and he is not considering a payroll tax cut or a rollback of tariffs on Chinese imports, his Treasury secretary said. Instead, Trump appears content to wait out the crisis, even as it emerges as a potential threat to his re-election, which he’s staked squarely to the performance of the American economy. His clearest calls have been directed at the Federal Reserve. “More easing and cutting!” Trump tweeted Tuesday after the central bank announced an emergency 50 basis point rate cut.
- Democrats have waited three years for a winner to call their own and take on President Donald Trump. On Super Tuesday, Joe Biden laid his claim to becoming their champion. He won across the Deep South, showing his appeal with black voters at the heart of the party, and claimed victory in Minnesota, a predominantly white Rust Belt state in Trump’s cross-hairs this November. He won the rich, highly educated suburbanites in Virginia and North Carolina who waffled for months over which candidate to support. He also scored an upset in Massachusetts, the home state of one rival and in the backyard of another.
- Oyo Hotels is cutting its global workforce by about 5,000 to 25,000 people, with the deepest reductions in China after business there crumbled in the wake of the coronavirus outbreak. The Indian startup, one of the largest in SoftBank Group Corp.’s portfolio, is reducing staff in China, the U.S. and its home country as it seeks to boost profitability. Oyo expanded rapidly after its founding in 2013 and reached a valuation of $10 billion, but investors have soured on money-losing businesses after WeWork’s meltdown and SoftBank has pushed portfolio companies to prioritize profitability.
- The Agnelli family’s Exor NV agreed to sell its reinsurance business, PartnerRe, to French insurer Covea for about $9 billion in cash. Exor signed preliminary accord with Covea that will become binding after it receives approval from workers’ councils, according to a statement late Tuesday. PartnerRe will also pay a $50 million cash dividend before the closing of the deal. Covea approached Exor last month with an offer for the Bermuda-based reinsurer and started exclusive talks with the holding company, which also controls Fiat Chrysler Automobiles NV and Ferrari NV. Bloomberg News first reported details of the talks Feb. 9.
- Speculation is mounting that the Bank of England will follow the Federal Reserve with an emergency interest-rate cut. Investors are currently pricing in a 60% chance that officials will lower borrowing costs by 50 basis points this month, with some market watchers, including HSBC and Nomura, saying the move may include an emergency cut before the scheduled meeting on March 26. A BOE spokesperson declined to comment on the market speculation.
- Hours after Donald Trump spoke by phone with a top leader of the Taliban about peace in Afghanistan, the U.S. conducted an airstrike against the militant group while it was attacking Afghan forces in Helmand province. U.S. military spokesman Sonny Leggett confirmed the airstrikes on Twitter, calling on the Taliban to stop “needless” attacks. “To be clear — we are committed to peace,” he tweeted, noting that Afghans and the U.S. had complied with the recently-signed agreement, while the Taliban “appear intent on squandering this opportunity and ignoring the will of the people for peace.”
- Michael Bloomberg plans to stay in the presidential race until after the results of Super Tuesday primaries are counted, his campaign manager said, rejecting calls from Democratic officials for the former New York mayor to drop out and make way for Joe Biden. “We’ll find out today how successful Mike has been and-or how successful the vice president has been, and I expect one of them to be the nominee and I expect the other to be supporting him,” Kevin Sheekey told reporters Tuesday. Bloomberg won American Samoa on Tuesday but lost states where he was expected to be competitive, including Virginia and Oklahoma. Bernie Sanders won his home state of Vermont and Colorado, while Biden took Virginia, North Carolina, Alabama and Oklahoma.
- Total coronavirus cases globally topped 93,000 and infections rose in Europe, where an official in Brussels tested positive. China reported 38 more deaths and fatalities rose to nine in the U.S. Cases also surged in South Korea, Iran, Malaysia and India. General Electric Co. said the outbreak would hurt first-quarter results, while the Tokyo Olympics Committee said it had no intention of canceling the event. Traders are speculating that the Bank of England will cut rates this month. Earlier, the European Central Bank and UBS said they would restrict travel.
- Indonesia’s finance minister urged other nations to follow the Federal Reserve in delivering an emergency interest-rate cut, warning that the economic threat from coronavirus is global and demands a multipronged policy response. “We need synchronized and coordinated policy responses — monetary, fiscal and trade and investment policies — to fight the weakening global demand and supply disruption because of the Covid-19 pandemic by all major economies,” Sri Mulyani Indrawati said Wednesday, responding to questions by text message. “While we welcome the move by the Fed to take the extraordinary step to cut interest rates by 50 basis points, it should be supported and followed by all other countries.”
- Dalian Wanda Group Co., the Chinese conglomerate that borrowed billions of dollars to fund an acquisition binge, is facing a double whammy this year: a wall of maturing debt and a deadly virus that has hampered its operations. The empire founded by billionaire Wang Jianlin, who once aspired to beat Walt Disney Co. in entertainment, needs to refinance or pay about 39.8 billion yuan ($5.7 billion) of its bonds this year. That is almost 36% of its total outstanding notes, the highest proportion of total bonds due among the nation’s top 25 firms, according to data compiled by Bloomberg. The payment pressure comes at a time when the outbreak of the new coronavirus, which has killed more than 3,100 people, is striking at the heart of the group’s businesses by deterring shopping and travel. The company has shut down malls, theme parks and cinemas to comply with epidemic-control measures, and is waiving or delaying rents for tenants.
- Vietnam, looking to allay the Trump administration’s wrath over its soaring trade surplus with the U.S., is committing to buy $3 billion in farm products from Nebraska. The agricultural shopping spree is part of a campaign to address complaints about the trade surplus and difficulties U.S. companies face in accessing Vietnamese markets. “We see a lot of room to increase purchases from America, and that will significantly help narrow our trade gap with the U.S.,” said Nguyen Do Anh Tuan, the agriculture ministry’s spokesman, who was part of a recent Vietnamese delegation to meet farm-product producers in the U.S. “Our demand for American farming products is very high.”
- China’s car sales had the biggest monthly plunge on record as the coronavirus kept shoppers away, intensifying the pressure on automakers already battling an unprecedented slump before the outbreak. Sales fell 80% in February, according to preliminary numbers from the China Passenger Car Association released Wednesday. Average daily sales improved toward the end of the month compared with the first three weeks, PCA said.
- General Electric Co. said the coronavirus outbreak that has disrupted supply chains and hurt business activity worldwide will weigh on its first-quarter results, presenting Chief Executive Officer Larry Culp with a new challenge in his bid to rescue the beleaguered company. Free cash flow from GE’s manufacturing operations will take a hit of as much as $500 million due to the virus, GE said Wednesday in a statement. The situation will also be a drag of up to $300 million on operating profit.
- Blackstone Group Inc. sees buyout opportunities increasing as the coronavirus outbreak spooks financial markets and hurts company valuations across the world. “From an economic perspective, the virus has created dislocation in the market and fear among the people, and once that starts one has to find the impact of negative consequences,” Blackstone co-founder Stephen A. Schwarzman said in an interview in Mumbai on Wednesday. “It creates a substantial opportunity to buy assets and give credit.” The coronavirus has killed 3,201 people and sickened more than 93,000 across the world, prompting central banks and governments to pledge support. But the actions, including the Federal Reserve’s emergency rate cut Tuesday, have failed to quell fears. The S&P 500 plunged soon after the Fed move and the 10-year Treasury yield fell below 1% for the first time ever. That gives private equity firms such as Blackstone room to deploy record amounts of capital they had amassed.
*All sources from Bloomberg unless otherwise specified