March 5th, 2020
Daily Market Commentary
- Canadian stocks rallied Wednesday after the Bank of Canada cut half a percentage point from its benchmark interest rate. The S&P/TSX Composite rose 2.2% at 16,779.53 in Toronto, the biggest one-day gain since December 2018. All sectors advanced; 197 of 230 shares rose, while 29 fell. The central bank reduced interest rates Wednesday to cushion the nation’s economy from the fallout of the coronavirus and said it is prepared to go further if necessary. However, economists say there are limits to what monetary policy can achieve, and the situation is dire enough to warrant additional help from Trudeau’s government.
- Bank of Canada Governor Stephen Poloz is doing his part to cushion the nation’s economy from the fallout of the coronavirus. Now it’s Prime Minister Justin Trudeau’s turn. The central bank slashed interest rates by half a percentage point Wednesday and said it is prepared to go further if necessary. However, economists say there are limits to what monetary policy can achieve, and the situation is dire enough to warrant additional help from Trudeau’s government. “We need a little bit of fiscal stimulus as well to at least support the economy through what is likely to be a bit of a rough patch through the spring,” Doug Porter, chief economist at Bank of Montreal, said by phone from Toronto. “It does make it more powerful if you’ve got both oars pulling at the same time. That can reinforce the message and help support the economy.”
- Beleaguered Canadian grain shippers, confronting millions of dollars of daily losses in the aftermath of a series of rail blockades, may face a sales logjam for at least six months. Exporters are still paying contract penalties and demurrage costs for ships, and the backlog of grain may take until October to clear, Wade Sobkowich, the executive director of the Western Grain Elevator Association, said in a telephone interview. Delays in shipping are costing as much as s C$10 million ($7.5 million) a day.
- The Stoxx Europe 600 Index reversed an early gain as companies from Continental AG to ITV Plc warned the epidemic would hurt results, and Airbus SE considered a cut in A330neo jet output. HSBC Holdings Plc evacuated some workers from its London office after one tested positive
- U.S. equity futures sank alongside stocks in Europe on Thursday as market choppiness persisted while investors sized up government efforts to contain the coronavirus outbreak and its economic impact. Treasuries rallied with the yen and gold. Contracts on the S&P 500 pointed to a retreat on Wall Street after California declared a state of emergency due to the pathogen. A day earlier the gauge had jumped more than 4% in the wake of the U.S. House authorizing $7.8 billion for virus prevention.
- In Asia, however, the main equities benchmark headed for a fourth straight gain. Surging Chinese stocks have now erased the last of their declines triggered by the outbreak. Risk assets have whipsawed this week, with traders still on edge amid a rise in virus cases around the world and governments extending quarantines and travel restrictions. An industry association warned the outbreak could cost airlines as much as $113 billion in lost revenue. The S&P 500 has rebounded since the Federal Reserve pledged action on Friday, but it remains about 7.5% below last month’s all-time high.
- Oil held below $47 a barrel in New York as OPEC agreed on a sharp production cut that’s still dependent on approval from Russia. Crude initially rose as ministers meeting in Vienna backed a 1.5 million-barrel-a-day reduction, but erased gains as it became clear that the plan is contingent on Russia’s support. Energy Minister Alexander Novak on Wednesday had refused to endorse such a move, and won’t return to negotiations until Friday.
- Gold gained as investors weigh the impact of authorities’ policy responses to the global coronavirus outbreak. U.S. lawmakers approved about $8 billion in spending for virus prevention, while the Bank of Canada lowered rates and Australia’s finance minister said stimulus measures are being considered. The moves follow the U.S. Federal Reserve’s emergency rate cut Tuesday. Stocks sank in Europe alongside U.S. equity futures, while Treasuries rallied.
- OPEC ministers took a gamble, agreeing on a large production cut to offset the demand hit from the coronavirus epidemic without having overcome Russian opposition to the move. Ministers from the Organization of Petroleum Exporting Countries agreed at talks in Vienna on Thursday that crude output should be reduced by 1.5 million barrels a day in the second quarter, but if Moscow doesn’t back the move there’s no deal, Iranian Oil Minister Bijan Namdar Zanganeh told reporters. Russian Energy Minister Alexander Novak wasn’t present at the conference, having left the city on Wednesday still opposed to idea. A third of the cut would come from Russia and other non-OPEC allies, Zanganeh said. Those countries will come to the Austrian capital on Friday to discuss the agreement. Oil rallied initially, then erased gains to trade little changed at $51.20 a barrel as of 12:22 p.m. in London.
- HSBC Holdings Plc evacuated some employees from its London office after one worker tested positive for the coronavirus. Italy is preparing a stimulus package worth about $5.6 billion to counter the worst outbreak in Europe, while OPEC agreed to cut oil production. Fatalities from the outbreak moderated in China and cases appeared to slow in South Korea. Switzerland reported its first death and infections surged again in Iran, where the virus has now spread to all provinces. Earlier, an industry association warned the outbreak could cost airlines as much as $113 billion in lost revenue. European stocks slumped as companies from Continental AG to ITV Plc warned the epidemic would hurt results, with the banking index set to enter a bear market.
- A Keurig Dr Pepper Inc. stock sale by its two largest holders priced at $27.25 per share, a person familiar with the matter said, in one of 2020’s largest secondary offerings to date. Shares fell 2.8% in pre-market trading. Maple Holdings B.V. and Mondelez International Holdings LLC sold about $1 billion worth of shares overnight via Morgan Stanley at a 1.87% discount to Wednesday’s closing price, the bottom of its $27.25 to $27.50 offering range. It’s the largest secondary offering since Tesla Inc. on Feb. 14 and the fourth-largest secondary offering of 2020, according to data compiled by Bloomberg.
- HP Inc. said it has rejected an unsolicited takeover offer from Xerox Holdings Corp. and has asked shareholders not to tender their shares. The $34 billion offer “meaningfully undervalues HP and disproportionately benefits Xerox shareholders,” the Palo Alto, California-based company said in a statement on Thursday. Xerox’s “urgency” in launching the offer shows its “desperation to acquire HP to address its continued business decline.” Xerox has pitched HP investors on a cash-and-stock offer worth $24 a share. For each HP share, a holder would receive $18.40 in cash and 0.149 Xerox shares. The offer is set to expire April 21, Norwalk, Connecticut-based Xerox said Monday in a statement.
- The novel coronavirus outbreak will cost the airline industry $63 billion to $113 billion in lost revenue from passengers this year, the International Air Transport Association said as it revised an estimate for a $30 billion loss made just two weeks ago. The scenario for a $113 billion in global revenue losses would involve the virus spreading more broadly, IATA said in a statement in Singapore on Thursday. That would represent a 19% drop from 2019 and a financial impact equivalent to what the aviation industry experienced during the global financial crisis over a decade ago, IATA said.
- The coronavirus is delivering a one-two punch to the world economy, laying it low for months to come and forcing investors to reprice equities and bonds to account for lower company earnings. From one side, the epidemic is hammering the capacity to produce goods as swathes of Chinese factories remain shuttered and workers housebound. That’s stopping production of goods there and depriving companies elsewhere of the materials they need for their own businesses. That supply shock was initially viewed as a short-term disruption, easily reversed once the virus was brought under control. Hence the initial predictions that global growth would follow a V-shaped trajectory, sliding in the first quarter and rebounding in subsequent weeks.
- Bernie Sanders is staring down a far more difficult path to the nomination than it seemed just a few weeks ago, as the map, the momentum and the demographics all favor a newly resurgent Joe Biden — who is in a strong position to pull away from the Vermont senator coming out of Super Tuesday. The next primaries on March 10 and March 17 go through states where Biden is poised to do well, like Michigan with its autoworkers and African-American population, Florida with its older residents and Ohioans who embrace Biden’s working-class roots. April 28 sees six important states that Biden could sweep, including New York and his home state of Delaware.
- Airbus SE is considering a cut in A330neo jet production after the wide-body’s biggest customer said a coronavirus-driven slump in travel had forced it to defer deliveries, according to people familiar with the matter. The planemaker may make a decision as soon as this month, the people said, asking not to be identified because the deliberations are private. In a filing in February, Malaysian discount carrier AirAsia X, representing about one-fourth of outstanding A330neo orders, said it would postpone deliveries of the model. The prospect of a rate reduction, coming on the heels of a prior cutback in annual A330 output to 40 jets, illustrates just how quickly the damage from the travel slowdown is rippling through the aerospace industry. AirAsia X, part of the Air Asia Group, is one of the largest foreign operators in China, the outbreak’s epicenter, where flights have fallen by as much as 80%.
- Russian President Vladimir Putin told his Turkish counterpart Recep Tayyip Erdogan that they shouldn’t ruin their relationship over the deepening crisis in Syria’s Idlib province, as the two leaders started high-stakes talks aimed at patching up ties. “We definitely have to discuss the whole situation that’s developed so far so that A, nothing like this happens again, and B, so that Russia-Turkish ties are not destroyed,” Putin told the Turkish president at the start of their summit in Moscow on Thursday. He offered condolences to Erdogan over the dozens of deaths suffered by the Turkish military in recent weeks during clashes with Russia-backed Syrian government forces in Idlib. But Syrian forces also sustained “serious losses,” Putin said.
- The Bank of Japan is likely to consider the introduction of a new lending program to help companies affected by the outbreak of coronavirus this month, according to people familiar with the matter. The BOJ recognizes that there is room for the central bank to mitigate the impact of the coronavirus as private banks could become cautious about making loans to businesses that are struggling, according to the people. The bank will probably discuss whether it can be done by adjusting existing lending programs or if it’s appropriate to create a new program, they said.
- Southwest Airlines Co. became the latest carrier to feel the sting of the coronavirus’s impact on air travel, warning a significant drop-off in demand in recent days will dent first-quarter revenue. The Dallas-based discounter expects a $200 million to $300 million impact on sales in the period as it sells fewer tickets and more customers cancel trips, it said Thursday in a regulatory filing. The airline industry is reeling globally as the viral outbreak spreads beyond Asia and customers in Europe and North America avoid flying. United Airlines Holdings Inc. and JetBlue Airways Corp. said Wednesday they would trim flights to grapple with a swift drop in demand. Industry group IATA on Thursday almost quadrupled its estimate for revenue lost because of the outbreak.
- Seven & i Holdings Co. has scrapped plans to acquire Marathon Petroleum Corp.’s Speedway gas stations for $22 billion, according to people familiar with the matter, ending a deal that would have been among the world’s biggest this year. The outbreak of the novel coronavirus was one of the factors that impacted negotiations in the exclusive phase, said one of the people, who asked not to be identified as the information is private. Seven & i decided not to proceed with the transaction on concerns over valuations, the person said. On Feb. 20, shares of Seven & i slumped in their biggest decline since 2011 after Bloomberg News reported the company was in exclusive talks to acquire Speedway, lining up financing for the potential transaction. The firm said in a filing that day that it’s considering various possibilities including partnerships and acquisitions for its new growth strategy.
*All sources from Bloomberg unless otherwise specified