PrefBlog

So the markets did not have a nice time today:

Canada’s main stock market resumed its slide after a three-day winning run as investors grew more nervous about the spread of the coronavirus pandemic and the Bank of Canada slashed interest rates to nearly zero.

The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 5.11%, or 683.43 points, at 12,687.74, while shares globally declined in a sign investors were focusing once more on the spread of the virus despite hopes for further stimulus measures to combat its economic impact.

The heavyweight energy and financial sectors led losses, falling 9.4% and 5.2%, respectively. Industrials were down 4.4%, while materials slid 6 per cent.
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The Dow Jones Industrial Average fell 915.39 points, or 4.06%, to 21,636.78, the S&P 500 lost 88.6 points, or 3.37%, to 2,541.47 and the Nasdaq Composite dropped 295.16 points, or 3.79%, to 7,502.38.

The pan-European STOXX 600 index lost 3.26%, and MSCI’s gauge of stocks across the globe shed 1.56%. Emerging market stocks lost 0.90%.
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U.S. Treasury yields were headed for a weekly decline, though the range of trading was far less volatile than in the previous two sessions.

Benchmark 10-year notes last rose 21/32 in price to yield 0.7424%, from 0.808% late on Thursday. The 30-year bond last rose 1-26/32 in price to yield 1.3291% from 1.395%.

Gold market participants remained concerned about a supply squeeze after a sharp divergence between prices in London and New York. The virus has grounded planes used to transport gold and closed precious metal refineries.

Spot gold dropped 0.8% to $1,615.92 an ounce. The metal was on track to post its largest weekly advance since 2008.

David Chang has some grim thoughts on the restaurant business:

More than anything, David, I do not want to incite panic and hysteria, but I think for restaurants and the service industry, there is going to be a morbidly high business death rate. My fear is the restaurants that survive are going to be the big chains, and we’re going to eradicate the very eclectic mix that makes America and going out to eat so vibrant and great. And there is a lot of feeling that even in good times, if chefs can’t make their numbers, they’re going to lose everything, so imagine what they must be feeling now. When the economy is booming, it’s hard for restaurants to get loans from the bank because there’s no assets to back them. I don’t know if it’s going to be feasible for the government to give out a stimulus loan to a restaurant or restaurant groups the way they were able to do in 2008 to the auto companies. So I’m trying to figure out what the best way is. The government should give a greater bailout package to real estate owners so that there can be relief for restaurant owners. It has to move up the chain.

S&P slashed Cirque de Soleil’s rating:

• Cirque Du Soleil Group faces significant liquidity pressure from the sudden shutdown of all of its shows in reaction to the coronavirus pandemic.
• In our view, a default, distressed exchange, or restructuring appears inevitable in the next six months absent a successful refinancing or unanticipated significantly favorable changes in the company’s circumstances.
• Therefore, S&P Global Ratings is lowering its issuer credit rating on Cirque Du Soleil Group to ‘CCC-‘ from ‘B-‘. The outlook is negative.
• We are also lowering the rating on the company’s first-lien facility to ‘CCC’ from ‘B’ and on its second-lien term loan to ‘C’ from ‘CCC’.
• The negative outlook reflects the possibility that Cirque could default, initiate a distressed exchange, or restructure its debt over the next several months absent unanticipated significantly favorable changes in the company’s circumstances.

Russia’s making noises about ending the oil price war:

A new OPEC+ deal to balance oil markets might be possible if other countries join in, Kirill Dmitriev, head of Russia’s sovereign wealth fund said, adding that countries should also co-operate to cushion the economic fallout from coronavirus.

A pact between the Organization of the Petroleum Exporting Countries and other producers, including Russia (known as OPEC+), to curb oil production to support prices fell apart earlier this month, sending global oil prices into a tailspin.

“Joint actions by countries are needed to restore the [global] economy … They [joint actions] are also possible in OPEC+ deal’s framework,” Mr. Dmitriev, head of the Russian Direct Investment Fund (RDIF), told Reuters in a phone interview.

Mr. Dmitriev and Energy Minister Alexander Novak were Russia’s top negotiators in the production-cut deal with OPEC. The existing deal expires on March 31.

TXPR closed at 446.85, down 3.34% on the day. Volume today was 3.05-million – well below the average of the past three weeks.

CPD closed at 9.01, down 1.96% on the day. Volume was 151,711, below the average of the past 30 trading days.

ZPR closed at 6.95, down 2.80% on the day. Volume of 411,645 was the third-lowest of the past 30 trading days, ahead of only March 4 and March 5.

Five-year Canada yields were down 12bp to 0.63% today.

It’s been a good time for markets. And a very good time for some:

Boeing is up nearly 90 percent this week. American Airlines has jumped almost 50 percent. Carnival Corporation has soared about 46 percent.

Wall Street has been in rally mode, as investors bid up shares of companies that were set to receive support from Washington’s $2 trillion coronavirus aid bill.

With the package advancing through the Senate, the gains continued on Thursday. The S & P 500 climbed about 6 percent, even after the government reported a staggering jump in unemployment claims by workers.

The three-day rally has lifted the S & P 500 by around 17 percent, its best such run since 1933, according to data from Howard Silverblatt, senior index analyst for S & P Dow Jones Indices.

And this was in the face of incredible unemployment numbers:

More than three million people filed for unemployment benefits last week, sending a collective shudder throughout the economy that is unlike anything Americans have experienced.
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Thursday’s unemployment numbers provide only the first hint of the economic cataclysm in progress. Even comparatively optimistic forecasters expect millions of lost jobs, and with them foreclosures, evictions and bankruptcies. Thousands of businesses have closed in response to the pandemic, and many will never reopen. Some economists say the decline in gross domestic product this year could rival the worst years of the Great Depression.

The terrifying speed of the economic collapse has spurred lawmakers to action. Late Wednesday night, Republican and Democratic senators agreed on a $2 trillion aid package that would provide cash payments to nearly all Americans and would expand the unemployment system, among other changes. The bill is expected to get final congressional approval on Friday.
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Despite the glitches, Thursday’s figures suggest the scale of the problem. In a single week, the pandemic wiped out a year and a half of job gains. The past two weeks’ claims alone would be enough to push the unemployment rate up to 5.7 percent from 3.5 percent in February — a half-century low that now seems like ancient history.

Some forecasters think the unemployment rate could hit 10 percent this summer, which would equal the highest level from the last recession more than a decade ago. Back then, it took nearly two years for the jobless rate to reach that height.

Meanwhile, in Canada:

Canada said it was ready to buy $150-billion of mortgage securities, up from $50-billion announced earlier this month, to expand funding for lenders dealing with tighter credit markets due to the economic impact of the coronavirus outbreak.
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The Toronto Stock Exchange’s S&P/TSX composite index rose 1.77%, or 231.94 points, to 13,371.74. The index has rebounded nearly 20% from Monday’s 8-year low.

The heavily weighted financials group rallied 1.7%, while industrials were up 3.3%.

The Canadian dollar was trading 1% higher at 1.4047 to the greenback, or 71.19 U.S. cents. The currency, which on Wednesday notched its biggest gain in four years, touched its strongest intraday level since March 17 at 1.4010.

The price of oil, one of Canada’s major exports, fell more than 7% as restrictions on travel worldwide slashed fuel demand and the United States scrapped plans to buy domestic oil for its emergency reserve.

Canadian government bond yields fell across the curve in sympathy with U.S. Treasuries. The 10-year was down 7.6 basis points at 0.826%.

TXPR closed at 462.27, up 4.69% on the day. Volume today was 4.85-million – and this enormous figure is well below the average of the past three weeks.

CPD closed at 9.19, up 5.15% on the day. Volume was 294,589, below the average of the past 30 trading days.

ZPR closed at 7.15, up 3.32% on the day. Volume of 1,032,368 was nothing special in the context of the past 30 trading days.

Five-year Canada yields were down 4bp to 0.75% today.

Two Trillion bucks are on the way:

Stocks on Wall Street rose on Wednesday as investors sized up a $2 trillion coronavirus rescue package intended to shore up the American economy, but the gains faded late in the day as debate over the bill continued without a vote in the Senate.

The legislation would be the biggest fiscal stimulus package in modern American history, and more than double the size of the roughly $800 billion stimulus package that Congress passed in 2009, during the last recession.

The S&P 500 climbed more than 1 percent, adding to a 9.4 percent gain on Tuesday that had come as investors anticipated that Democrats and Republicans would reach a deal over the plans.

Some of the companies expected to benefit from government help led Wednesday’s gains. Boeing was up more than 20 percent, helping lift the Dow Jones industrial average. American Airlines and Carnival Corporation both jumped more than 10 percent.

But there are always some who are convinced of a vast conspiracy to do them out of what is rightfully theirs:

A last-minute dispute over jobless aid was delaying a final Senate vote expected on Wednesday to approve sweeping legislation to deliver $2 trillion in government relief for an economy battered by the coronavirus pandemic.

Four Republican senators said they believed the bill, which would provide a substantial expansion of unemployment insurance, could lead to layoffs and incentivize workers to collect unemployment payments rather than take a job. They argued that because the unemployment benefits would in some cases be greater than people’s regular wages, some employers and employees would decide that layoffs were preferable. The senators said they would object to fast-tracking a vote until their concerns were addressed.

“If this is not a drafting error, then this is the worst idea I have seen in a long time,” said Senator Lindsey Graham, Republican of South Carolina. “We need to create a sustainable system.”

We all know someone like Lindsey Graham, eh?

And it was a good day for Canadian markets:

Canada’s main stock index climbed on Wednesday after the country’s legislators approved a $27-billion stimulus bill to help people and businesses deal with the coronavirus pandemic. The bill also includes $55-billion in the form of tax deferrals.

The Toronto Stock Exchange’s S&P/TSX composite index closed unofficially up 568.15 points, or 4.52%, at 13,139.23. It rose as high as 12,906.28 before paring gains late in the session.
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Ten of the index’s 11 major sectors were higher, led by an 8-per-cent jump in the heavyweight energy sector and a 6.7-per-cent increase in financial stocks.

Of course, all the disruption is leading to shortages of vital supplies:

Sales of gold bars and coins have been soaring since the outbreak of the novel coronavirus and dealers are struggling to keep up with demand. While orders pour in, the supply has tightened considerably because of government lockdowns, grounded airlines and decisions by several bar and coin producers to close down for safety reasons.
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The U.S. Mint recently sold out of its popular Silver Eagle coin after sales soared by nearly 300 per cent in March. The Perth Mint in Australia, the country’s official supplier of coins and bars, said demand was so strong it no longer had any gold bars in stock and only a limited supply of gold and silver coins.

Last Friday, the Royal Canadian Mint suspended production of its coins and other products for at least two weeks because of the virus. In a statement, CEO Marie Lemay cautioned that while officials had a plan to resume “modified production” next month, they anticipated “a longer suspension of production and shipping for our numismatic collectable coins as we prioritise the support of trade and commerce.”

The Fed’s support of the corporate bond market had some multiplier effect:

• The world’s biggest credit ETF took in $1.06 billion on Monday as traders rotated back into corporate bond bets, Bloomberg reported.
• The iShares iBoxx $ Investment Grade Corporate Bond ETF ended the day up 7.4% after the Federal Reserve announced it will begin buying corporate bonds and credit ETFs amid the coronavirus’s hit to economic activity.
• Monday’s inflows were the second-biggest in the ETF’s history, according to Bloomberg.
• The influx of investor cash follows record retreats from investment-grade and high-yield debt funds in the week ended March 19, according to Bank of America.

TXPR closed at 441.57, up 8.13% on the day. Volume today was 4.14-million – and this enormous figure is well below the average of the past three weeks.

Today’s enormous gain, coupled with yesterday’s, means we have recouped all the lost ground since … um … March 16. The total return version of the index is now down only 24.86% on the month to date, so that’s pretty good, eh?

CPD closed at 8.74, up 7.90% on the day. Volume was 402,477, above average but nothing special in the context of the past 30 trading days.

ZPR closed at 6.92, up 9.84% on the day. Volume of 1,439,516 didn’t even make the top three of the past 30 trading days.

Five-year Canada yields were up 3bp to 0.79% today.

PerpetualDiscounts now yield 6.81%, equivalent to 8.85% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.87%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed dramatically to 500bp from the 570bp reported March 18. But we’re still way over the old record set on November 26, 2008 when trouble with the BCE buyout caused a short-lived spike in PerpetualDiscount bid yields, moving the Seniority Spread to 445bp.

I’m not reviewing suspect quotes today, as has been the case for the past while. I’m saving my sarcasm for less turbulent times.

Today the markets celebrated hopes of a great big bail-out:

Stocks soared on Tuesday on expectations that Congress was close to producing a stimulus bill to stabilize America’s faltering economy and offer lifelines to industries on the brink of collapse because of the coronavirus.

A plan to bail out companies and send checks of up to $1,200 to Americans had been stalled since Sunday over objections by Democrats. But on Tuesday, top Democrats and Trump administration officials said they were optimistic about finalizing an agreement on a roughly $2 trillion plan.

The S&P 500 had its biggest daily gain since 2008, rising more than 9 percent. Stocks in Europe climbed, led by Germany, where stocks rose more than 10 percent.

… and in Canada …:

Canada’s main stock market rallied on Tuesday, rebounding from an eight-year low the day before, as hopes rose that global stimulus measures will ease the economic impact of the coronavirus pandemic.

The Toronto Stock Exchange’s S&P/TSX composite index surged 11.96%, or 1,342.59 points, to 12,571.08, after hitting its lowest intraday level since October 2011 at 11,172.73 on Monday. Since peaking in February, the index has tumbled about 30%. Tuesday’s percentage gain for the Canadian index was its biggest since July 1979, based on Refinitiv Eikon data.
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Suncor Energy Inc. cut its 2020 production outlook and suspended share repurchases for the year following the decline in crude oil prices and due to the economic impact of the virus outbreak. Still, its shares rallied 13%.
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The Canadian dollar was little changed at about 1.45 to the U.S. dollar, or 68.97 U.S. cents. The currency, which last Thursday hit a four-year low at 1.4669, traded in a range of 1.4375 to 1.4532.

Canadian government bond yields rose across the curve in sympathy with U.S. Treasuries. The 10-year was up 3.7 basis points at 0.855%.

As mentioned yesterday, the Fed has announced the Primary Market Corporate Credit Facility and the Secondary Market Corporate Support Facility. There are calls for the BoC to do the same:

The mad scramble for cash amid the coronavirus panic is putting enormous strain on the Canadian corporate bond market, which the country’s largest companies rely on for a steady source of financing.

While high-quality credit typically serves as a safe haven in the midst of an economic shock, corporate bonds have plummeted alongside stocks over the past few bewildering weeks.

The iShares Canadian Corporate Bond Index ETF (XCB) – the largest of its kind – fell by a staggering 23 per cent in just 11 trading days, before a market-wide bounce on Tuesday clawed back a portion of the fund’s losses.
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To help restore order, the Bank of Canada may follow the U.S. Federal Reserve’s lead and intervene in the corporate credit market for the first time in its history.

“To draw a line and support investment-grade debt, that’s the kind of bold move that can inspire confidence. That will create some semblance of rationality,” Mr. Mamdani said.

Last week, the Bank of Canada opened that door, giving itself the authority to buy and sell corporate and municipal debt, “for purposes of addressing a situation of financial system stress that could have material macroeconomic consequences,” according to a regulatory notice from March 18.

But in the real world:

A source familiar with the data confirmed that the government received an estimated 929,000 Employment Insurance claims in the week of March 16-22 – a week in which a dramatic escalation of social-isolation requirements across the country forced many businesses to either sharply curtail their operations or shut down entirely.

Those EI filings represent roughly 5 per cent of all employees in the country – and imply that the national unemployment rate may have nearly doubled in just seven days.

The numbers of layoffs could surge again in the coming days, as the country’s two most populous provinces, Ontario and Quebec, will institute new rules requiring businesses deemed non-essential to close their doors as of midnight Tuesday night.

TXPR closed at 408.38, up 3.996% on the day. Volume today was 4.63-million – and this enormous figure is merely about average of the past two weeks.

CPD closed at 8.10, up 3.18% on the day. Volume of 325,281, above average but nothing special in the context of the past 30 trading days.

ZPR closed at 6.30, up 3.11% on the day. Volume of 500,507 was the lowest since March 6.

Five-year Canada yields were up 5bp to 0.76% today.

I’m not reviewing suspect quotes today, as has been the case for the past while. I’m saving my sarcasm for less turbulent times.

Update, 1:47am: A deal has been reached on the US stimulus package:

The legislation, which is expected to be enacted within days, is the biggest economic stimulus package in modern American history, aimed at delivering critical financial support to businesses forced to shut their doors and relief to American families and hospitals reeling from the rapid spread of the disease and the resulting economic disruption.

Struck shortly before 1 a.m., it was the product of a marathon set of negotiations among Senate Republicans, Democrats and President Trump’s team that nearly fell apart as Democrats insisted upon stronger worker protections and oversight over a new $500 billion fund to bail out distressed businesses.

The deal was struck after a furious final round of haggling between Senator Mitch McConnell, Republican of Kentucky, Steven Mnuchin, the Treasury secretary, and Senator Chuck Schumer, Democrat of New York, after Democrats twice blocked action on the measure as they insisted on concessions.

S&P overnight Futures are down 1.12% as of 1:34am; we’ll see what the next few updates look like!