Category: Market Action

So, the New York Times sums up the day:

Stocks in the United States on Monday suffered their worst single-day decline in more than a decade, as the coronavirus and an oil price war fueled concerns about the state of the global economy.

The S&P 500 fell 7.6 percent on Monday, falling so swiftly in early trading that trading was briefly halted early in the day — a rare occurrence meant to prevent stocks from crashing. The Dow Jones industrial average fell 2,000 points, or 7.8 percent.

The S&P index ended the day 19 percent below the peak it reached last month. A decline of 20 percent from that high would be seen as marking the end of the bull market that began exactly 11 years ago.

The drop was the worst for stocks in the United States since December 2008, when the country was still reeling from the collapse of Lehman Brothers and the housing crisis that dragged the economy into a recession.

The Globe & Mail adds:

Canada’s main stock index fell on Monday by the most since Black Monday in 1987 and the loonie hit a near-three-year low as a plunge in oil prices rattled investors, with pressure rising on the Bank of Canada to cut interest rates further.

The Toronto Stock Exchange Composite Index, which has a 15 per cent weighting in energy stocks, closed down 10.3 per cent, its biggest drop since the October 1987 stock market crash, as Saudi Arabia and Russia signaled they would compete on price rather cut output further.

The price of oil, one of Canada’s major exports, fell as much as 34 per cent to its lowest level since February 2016, at $27.34 a barrel.
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The energy sector on the Toronto Stock Exchange tumbled by 27.2 per cent, with Cenovus Energy Inc down more than 50 per cent, while the Canadian dollar slumped to its weakest intraday level since May 2017 at 1.3760 to the U.S. dollar.
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Money markets expect a further 50 basis points of easing from the Bank of Canada by June, which would leave its benchmark rate at just 0.75 per cent.

Bond investors are counting on further easing, with the 10-year yield hitting a record low of 0.233 per cent. It was last down 19.1 basis points at 0.537 per cent.
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Equity markets in Frankfurt and Paris tumbled about 8.5 per cent and London tanked 11 per cent. Italy’s main index slumped 14.3 per cent after the government over the weekend ordered a lockdown of large parts of the north of the country, including the financial capital, Milan.

The pan-regional STOXX 600 fell into bear market territory from an all-time high in February. Oil stocks bore the brunt of losses, with energy giants BP 19.5 per cent lower and Royal Dutch Shell off 18.2 per cent.

The energy sector in Europe was at lowest since 1997.
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The 10-year Bund yield – the euro zone’s leading safe asset – fell to a record low of -0.906 per cent, while inflation expectations for the euro zone sank below 1 per cent for the first time.

There is desperation in Italy:

The Italian government on Monday night extended restrictions on personal movement and public events to the entire country, in a desperate effort to stem the coronavirus outbreak — an extraordinary set of measures in a modern democracy that values individual freedoms.

Prime Minister Giuseppe Conte announced in a prime-time news conference that public gatherings were banned and people would be allowed to travel only for work or for emergencies.

I can’t remember anything like this … well, I remember the crash of ’87 pretty well, but I was only a clerk then and spent the day snickering at the procession of worried-looking managers trooping into the vice-president’s office … the closest I can come to in my professional career was October 10, 2008, when PerpetualDiscounts (which comprised about 2/3 of the market at that time) were down 5.10%. I had to prepare an extra edition of PrefLetter because of that! And there was November 26, 2008 when trouble with the BCE buyout sent TXPR down 5.94%.

Remember the good old days, when we thought those were major moves? Remember March 6, 2020, when I was impressed that oil was down 10%? Hell, that’s a rounding error.

TXPR closed at 531.89, down 7.48% on the day. Volume today was 5.36-million, highest of the past 30 trading days days and swamping second-place March 6.

It is noteworthy that the Total Return version of TXPR closed at 1,341.03 today. I will note that the value of this index on October 29, 2010 was 1341.41, so total return has been negative over the past NINE YEARS AND FOUR MONTHS and a little bit. Remember those charts I published in the post MAPF Performance : August 2019 illustrating the downturn to date, comparing it to the Credit Crunch and remarking that there had been zero total return for seven years and four months? Well, those charts are now out of date.

CPD closed at 10.52, down 8.12% on the day. Volume of 458,157 was the highest of the past thirty days, trouncing second-place March 2.

ZPR closed at 7.95, down 11.76% on the day. Volume of 2,368,901 was by far the highest of the past thirty days, almost three times as big as second-place February 24. The woes of this ETF attracted some notice on Financial Wisdom Forum today.

Five-year Canada yields were down 14bp to 0.54% today. The lowest value I have in my database of weekly observations is 0.48%, reached on February 10, 2016.

I’m not going to check for possible lousy quotes today. Any sensible market maker started coughing and complaining about having the flu shortly before the opening and skedaddled home anyway. Besides, I’d be up all night!

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Jobs, jobs, jobs!

The Canadian economy added more than 30,000 jobs during February as the labour market continues a run of strength …

During the month, 30,300 positions were created, handily beating the consensus estimate of 11,000 jobs added, Statistics Canada said Friday in its Labour Force Survey. The unemployment rate ticked higher, to 5.6 per cent, but remains near historic lows.

The entirety of February’s gain was in full-time work from private-sector employers. Wholesale and retail trade (22,600 jobs created) and manufacturing (16,000) were standout sectors, while Quebec added the largest number of jobs (20,000) by province and saw its jobless rate tumble to 4.5 per cent, the lowest since comparable data became available in 1976.

… and south of the border were jobs, jobs, jobs!

Still, the report from the Department of Labor offered a refreshing breath of positive economic news. Employers expanded payrolls by 273,000 jobs in February, while revisions to data from previous months added 85,000 more jobs to the tally. The jobless rate ticked down to 3.5 percent.
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“JOBS, JOBS, JOBS!!!” President Trump wrote on Twitter.
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There were a few signs of weakness in the report. Wage growth, which was already slowing from last year’s peak, was less impressive. Average hourly wages were up 0.2 percent, bringing down the year-over-year gains to 3 percent.

There was just one little problem:

Wall Street was gripped by another wave of worry over the spreading coronavirus on Friday. Stocks tumbled, investors rushed into the safety of government bonds, and oil prices nose-dived.

Financial markets have traded wildly for more than two weeks, as investors have tried to come to grips with the sudden rise in the number of virus cases, and the threat to the economy posed by measures to contain them.

Friday was no exception. The S&P 500 fell about 4 percent at its lowest point before recovering somewhat and ending down less than 2 percent.

Perhaps the most notable move in financial markets was a slide in yields on government bonds to levels that would have been considered unthinkable just two weeks ago. The yield on the 10-year Treasury note fell to as low as 0.68 percent in early trading Friday. Such a steep drop reflects near panic, analysts said, given that there was little news overnight.

Oil prices slid 10 percent as the world’s major producers failed to reach an agreement to reduce production as demand falls.

Oil down 10% in a day? Mohammed El-Erian posted a chart:

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Ten percent in a day on a commodity! One wonders how many fortunes have been won and lost.

And all this has ramped up negative rate speculation:

A collapse in Treasury yields as concerns about the spreading coronavirus sends investors scurrying for low-risk government securities has led some to start preparing for the possibility that the U.S. debt yields could turn negative.

The Federal Reserve on Tuesday made its first emergency cut since the financial crisis, dropping the federal funds rate by 50 basis points to the 1.0% to 1.25% band.

The move has not satisfied markets, however, with stock markets cratering and Treasury yields continuing to plunge to record lows. Interest rate futures traders are now pricing in a 41% probability that rates will be zero-bound by June, according to the CME Group’s FedWatch Tool.
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The Fed is reluctant to cut rates into negative territory as it risks disrupting the large U.S. money market sector. There are also questions over whether negative rates have been successful at stimulating growth in other countries.

“We have a very, very large money market complex,” said Subadra Rajappa, head of U.S. interest rate strategy at Societe Generale in New York. “The Fed has resisted taking interest rates to negative territory because they don’t want to disrupt the liquidity in the financial system.”

TXPR closed at 574.91, down 0.96% on the day. Volume today was 3.44-million, highest of the past 30 trading days days and edging second-place March 4

CPD closed at 11.45, down 0.95% on the day. Volume of 106,124 was well off the pace set in the last two weeks.

ZPR closed at 9.01, down 1.74% on the day. Volume of 443,505 was nothing special in the context of the past two weeks.

Five-year Canada yields were down 6bp to 0.68% today.

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Another day in the Attack of the Coronavirus:

Stocks plunged on Thursday, falling more than 3 percent for the fourth time in the past two weeks, as investors began to consider that the economic damage caused by the fast spreading coronavirus could be much worse than they had initially expected.

Stocks have traded in wild swings for days, initially triggered by the appearance of large numbers of infections outside of China, where the outbreak originated.

That market volatility continued for a fourth day this week, with the S&P 500 falling more than 3 percent on Thursday afternoon. The index has gained or lost more than 3 percent six times in the past two weeks.
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Worry about long-term growth also pushed the yield on 10-year United States Treasury notes to a new low of 0.9 percent. Because of their relative safety, government bonds are in high demand during bouts of panic over the economy.

TXPR closed at 580.50, down 0.55% on the day. Volume today was 2.33-million, lowest of the past six trading days days.

CPD closed at 11.56, down 0.77% on the day. Volume of 99,390 was the lowest of the past nine trading days.

ZPR closed at 9.17, down 0.43% on the day. Volume of 340,283 was lowest of the past six trading days.

Five-year Canada yields were down 18bp to 0.74% today. Eighteen basis points! That’s awesome.

We had a bit of a respite from constant losses today, as it appears the BoC policy rate cut was fully anticipated. TXPR was actually up 7bp on the day!

PerpetualDiscounts now yield 5.35%, equivalent to 6.96% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.04%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 390bp from the 385bp reported February 26.

The Fed slashed its policy rate today:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

This had mixed results:

Stocks in the United States rallied for about 15 minutes after the rate cut, but worries about the Fed’s impotence in the face of economic risks from the coronavirus quickly fueled a market sell-off. By late Tuesday, stocks were sharply lower and bond yields had plummeted to previously unthinkable lows as investors sought a safe place to park their money.

The S&P 500 fell about 2.8 percent, undoing some of Monday’s 4.6 percent surge. The yield on 10-year Treasury notes dipped below 1 percent.

Interest rates are now set in a 1 percent to 1.25 percent range, and Jerome H. Powell, the Fed chair, signaled that further moves were possible. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Mr. Powell said at a news conference, adding the Fed was “prepared to use our tools and act appropriately, depending on the flow of events.”

But the market’s negative reaction may reflect a recognition that cutting interest rates or engaging in other types of fiscal stimulus will do little to contain the virus that has sickened more than 90,000 people, with major outbreaks taking hold in South Korea, Japan, Iran and Italy.

So now all eyes are on the Bank of Canada:

The Canadian dollar fell against the greenback on Tuesday, giving up much of the prior day’s rally, as the Federal Reserve cut interest rates in an emergency move that investors see the Bank of Canada matching at a policy decision on Wednesday.

At 2:50 p.m. (1950 GMT), the Canadian dollar was trading 0.4% lower at 1.3371 to the greenback, or 74.79 U.S. cents. The currency, which on Friday hit its weakest intraday level in nearly nine months at 1.3465, traded in a range of 1.3319 to 1.3387.
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Canadian government bond yields tumbled across a steeper yield curve in sympathy with U.S. Treasuries. The 10-year yield was down 14.9 basis points at 0.953%, its lowest level since October 2016.

The Canada five year yield was down 15bp to 0.90%. On February 21, just before the Great Coronavirus Panic of 2020, the yield was 1.30%. That’s a fast decline, particularly when considering that the year-end value was 1.69%!

So, the Canadian preferred share market got hit again today; and I’m afraid that the constant repetition isn’t helping my comprehension of the correlation at all! I’m just glad I don’t have to provide any valuations of accounts today – the quote quality is disgraceful. Who knows where anything is priced? But don’t worry – jobs at the Toronto Exchange are protected.

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TXPR closed at 585.84, down 0.71% on the day. Volume today was 2.94-million, highest of the past thirty days, ahead of second-place February 28.

CPD closed at 11.71, down 0.51% on the day. Volume of 417,130 was the highest of the past 30 days, more than double second-place February 27.

ZPR closed at 9.37, down 1.16% on the day. Volume of 474,263 was fourth-highest of the past 30 days, with the top three all occurring last week.

Five-year Canada yields were down 2bp to 1.05% today.

Equity markets did well today, thanks to the Greenspan Put:

Stocks surged in the final minutes of trading on Monday, snapping back from one of the worst weeks for global markets since the 2008 financial crisis as investors seized on promises that the world’s governments would step in to help if the global economy was slammed by the outbreak of the coronavirus.

The S&P 500 jumped 4.6 percent, the biggest single-day leap since late December 2018. The rally followed news that central bankers from the world’s biggest economies would join a conference call with Group of 7 finance ministers on Tuesday to discuss a response to the outbreak, fueling expectations among investors that governments might lower interest rates in tandem.
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Early Monday, both the Bank of Japan and Bank of England pledged to monitor markets closely and safeguard financial stability. Later, the International Monetary Fund and the World Bank issued a joint statement saying that the groups stood ready to help “address the human tragedy and economic challenge” posed by the virus, and the European Central Bank said it “stands ready” to respond to signs of a slowdown.

The conference call will take place tomorrow:

Finance ministers and central bank chiefs from G7 countries will hold talks Tuesday amid rising global uncertainty over the coronavirus epidemic, the US Treasury said Monday.

US Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell “will lead a call with their G7 counterparts tomorrow morning,” the department confirmed in a statement.

The Bank of Canada is expected to join in:

Expectations of a Bank of Canada interest-rate cut this week have rapidly moved from unlikely to imminent as global governments and central banks begin to respond en masse to the escalating economic threat from the COVID-19 virus.

With Canada’s top central bankers in closed-door deliberations for Wednesday’s regularly scheduled interest-rate decision, bond-market indicators show traders have now fully priced in a quarter-percentage-point cut in the Bank of Canada’s key overnight rate, to 1.5 per cent from 1.75 per cent. A week ago, market pricing indicated only 30-per-cent odds of a cut.

The September hiccup in the US repo market was discussed on September 20 and September 23. Now Gara Afonso, Marco Cipriani, Adam Copeland, Anna Kovner, Gabriele La Spada, and Antoine Martin of the New York Fed weigh in with a staff report titled The Market Events of Mid-September 2019:

This paper studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked up and, on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions’ reserve holdings may have been close to, or lower than, their desired level. Moreover, frictions in the interbank market may have prevented the efficient allocation of reserves across institutions, so that although aggregate reserves may have been higher than the sum of reserves demanded by each institution, they were still scarce given the market’s inability to allocate reserves efficiently. Second, we provide evidence that some large domestic dealers likely experienced an increase in intermediation costs, which led them to charge higher spreads to ultimate cash borrowers. This increase was due to a temporary reduction in lending from money market mutual funds, including through the Fixed Income Clearing Corporation’s (FICC’s) sponsored repo program.

At 2015.40, the HIMIPref™ FixedReset (Discount) total return subindex is getting perilously close to the August 28, 2019, low point of 1936.03.

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Well, let’s just be grateful that February is a short month:

Stocks tumbled for a seventh consecutive day on Friday, with the S&P 500 index falling about 0.8 percent, bringing its loss for the week to more than 11 percent. It was the worst weekly decline for stocks since the 2008 financial crisis. In early October that year, the S&P 500 fell about 18 percent.

The Dow Jones industrial average fell more than 1 percent on Friday.
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Here’s how the major indexes around the world fared this week:

S&P 500 in United States: ⬇️ 11%

Dow Jones in United States: ⬇️ 12%

FTSE 100 in Britain: ⬇️ 11%

DAX in Germany: ⬇️ 12%

KOSPI in South Korea: ⬇️ 8%

Hang Seng Index in Hong Kong: ⬇️ 4%

Nikkei 225 in Japan: ⬇️10%

I see the TSX Composite was down 2.72% today, and down 8.68% on the week.

And in the Treasury market:

The yield on the benchmark 10-year United States Treasury bonds fell to a record low of 1.16 percent in trading Friday morning, down from 1.9 percent at the start of the year and 2.7 percent one year ago. From Japan to Germany to Australia, every other major economy is experiencing a similar shift.

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TXPR closed at 590.00, down 1.74% on the day and the Total Return version down 4.30% on the week and 3.38% on the month. Volume today was 2.61-million, second-highest of the past thirty days, behind only January 30.

CPD closed at 11.77, down 1.51% on the day. Volume of 127,586 was the fourth-highest of the past 30 days … each of the three bigger days happened this week.

ZPR closed at 9.48, down 0.42% on the day. Volume of 734,205 was second-highest of the past 30 days, behind only February 24.

Five-year Canada yields were down 6bp to 1.07% today.

There is renewed speculation about a Fed rate cut:

Federal Reserve officials signaled a willingness to cut interest rates if the coronavirus outbreak worsens, laying out a scenario in which the central bank might respond as infections and quarantines spread globally.

“We could cut rates if we got a global pandemic that actually develops with health effects that seem to be approaching the same level as seasonal influenza, but that doesn’t look like the baseline as of today,” James Bullard, president of the Federal Reserve Bank of St. Louis, said during a speech in Florida on Friday. Mr. Bullard does not vote on rate moves this year, but he is one of 17 regional and Washington-based officials who participate in policy discussions.

… and Powell released a statement:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.

The decline in oil prices has taken its toll on oil stocks which has taken a toll on OSP.PR.A, which I have recommended that shareholders retract. The NAVPU was a mere 8.73 as of February 27 … and maybe even less today, eh? So, unless there’s a March Miracle, this thing’s going to default … not technically, because technically preferred shares don’t default, but, well, for all intents and purposes …