PrefBlog

A nice day, for some:

The decimated energy sector has rallied hard off of 20-year lows, pushing Canadian stocks to a decent gain on a day that saw the U.S. market slip.

For the first time since the COVID-19 pandemic consumed global financial markets starting in early March, the S&P/TSX Composite Index meaningfully diverged from U.S. equity benchmarks, with a gain of 2.6 per cent on Tuesday. The S&P 500 index dropped by 1.6 per cent.

Canada’s biggest oil sands players led the advance, adding to a rebound that started on Monday. Over just two trading days, Canadian Natural Resources Ltd. shares have surged by 45 per cent, and Suncor Energy Inc. by 37 per cent.

Potential catalysts for the sudden reversal include expanded federal wage subsidies that would apply to energy sector employees, as well as Tuesday’s announcement that the long-delayed Keystone XL pipeline would go ahead with support from the province of Alberta.
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For energy companies facing a liquidity crunch, there is hope that lenders will be flexible. “We’re seeing the banks be somewhat understanding,” Mr. Stelmach said. In some cases, lenders are offering extensions and renewals rather than calling in loans.

Loan guarantees are also expected to be included in a multibillion-dollar aid package for the oil patch, which Finance Minister Bill Morneau said last week was coming soon. These incremental developments are insufficient to explain the magnitude of the move in Canadian energy stocks so far this week, with the S&P/TSX Capped Energy Index rising by 30 per cent.

There was some talk in trading circles that a big U.S. investor has accumulated shares of Suncor and Canadian Natural Resources over the last couple of days.
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Wall Street’s three major indexes tumbled on Tuesday, with the Dow registering its biggest quarterly decline since 1987 and the S&P 500 suffering its deepest quarterly drop since the financial crisis on growing evidence of massive economic damage from the coronavirus pandemic.

In one of the fastest turns into a bear market, the S&P 500 and the Dow both ended the first quarter more than 20% below the end of 2019, as the health crisis worsened in the United States and brought business activity to a standstill.

It was also the S&P’s biggest first-quarter decline on record as consumers were advised to stay at home, leading businesses to announce temporary closures and massive staff furloughs.
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The Dow Jones Industrial Average fell 410.32 points, or 1.84%, to 21,917.16, the S&P 500 lost 42.06 points, or 1.60%, to 2,584.59 and the Nasdaq Composite dropped 74.05 points, or 0.95%, to 7,700.10.

Nevertheless:

Amid draconian efforts to contain the spread of the novel coronavirus, the avalanche of pink slips stemming from the COVID-19 pandemic has only begun. Some economists predict job losses will be nearly three times greater than they were during the Great Recession of 2008-09, and Canada’s unemployment rate could reach 9 per cent by summer.

The jarring disruptions caused by COVID-19 threaten to send many Canadian households into financial tailspins. In that scenario, a crisis many policymakers hoped would cause just a sharp but brief economic interruption could morph into a more painful, long-lasting collapse in aggregate demand, reverberating long after pandemic control measures have ended.

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And quantitative easing is on the way:

The Bank of Canada is likely to buy about $200 billion of government debt after announcing its first quantitative easing program, which would nearly triple the amount of assets on the central bank’s balance sheet, bond strategists estimate.

Just a few weeks ago, Canada’s central bank was defying the global trend of monetary policy easing. But in a series of emergency interest rate cuts this month it has slashed its key interest rate to 0.25 per cent, the level it regards as the floor.

Quantitative easing, or large-scale buying of assets, is now the policy measure favored by the BoC to ease the economic impact of the coronavirus pandemic.

The bank plans to buy at least $5 billion a week of Government of Canada securities, starting on April 1, with the purchases continuing “until the economic recovery is well underway.”

Regrettably, easing is targetted on liquidity. It does not directly address solvency.

But there’s at least one group with no worries:

A tentative deal between Ontario’s public elementary school teachers and the government comes with an annual wage increase of just 1 per cent but allows boards to hire 434 more educators across the province to support students with special learning needs.

The Elementary Teachers’ Federation of Ontario (ETFO) shared details Monday evening of its recently negotiated deal, which includes a 4-per-cent bump in benefits in each year of the three-year offer – higher than the government originally wanted.

Now, if that’s not the classic contract in the education monopoly, I don’t know what is. A nice tough headline number for the politicians to brag about; a boatload of money slipped in through the back-door for the union to snicker about.

TXPR closed at 468.69, up 2.17% on the day. Volume today was 2.40-million, second-lowest of the past thirty days, ahead of only March 5.

CPD closed at 9.37, up 2.18% on the day. Volume was 161,128, below the average of the past 30 trading days.

ZPR closed at 7.29, up 1.96% on the day. Volume of 674,913 was low in the context of the past 30 trading days.

Five-year Canada yields were down 4bp at 0.59% today.

Oil action is in the news today:

Energy stocks led Canada’s main stock index higher on Monday, despite a plunge in crude prices as the market waits for news of support from Ottawa for the oil and gas industry.

The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 350.76 points, or 2.76%, at 13,038.50 The index fell as low as 12,548.96 in morning trading.

Nine of the index’s 11 major sectors were higher, paced by the energy sector, which rose 11.9%.

Global oil benchmark Brent crude plunged to its cheapest in almost 18 years on Monday and U.S. crude briefly tumbled below $20 per barrel on growing fears the global coronavirus shutdown could last months and demand for fuel will decline further.
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Brent futures fell $2.17, or 8.7%, to settle at $22.76 a barrel, their lowest close since November 2002, while U.S. West Texas Intermediate (WTI) crude fell $1.42, or 6.6%, to $20.09, the lowest close since February 2002.
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Economists expect a number of weak reports on the economy to come in through the week. The lowlight will likely be Friday’s jobs report, where economists expect to see the largest fall in the nation’s payrolls since the Great Recession.

But who knows? Maybe Trump will join OPEC with his pals MBS and Putin:

U.S. President Donald Trump and Russian President Vladimir Putin agreed during a phone call on Monday to have their top energy officials meet to discuss slumping global oil markets, the Kremlin said, as Trump called Russia’s price war with Saudi Arabia “crazy.”

The agreement marks a new twist in global oil diplomacy since a failed deal earlier this month between the Organization of the Petroleum Exporting Countries and Russia to cut production ignited the price war between Russia and OPEC’s de facto leader Saudi Arabia.
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Shortly before Monday’s phone call, Trump said Saudi Arabia and Russia “both went crazy” in their oil-price war and that “I never thought I’d be saying that maybe we have to have an oil (price) increase, because we do.”

“The price is so low now they’re fighting like crazy over, over distribution and over how many barrels to let go,” Trump said in an interview on Fox News.

It would seem worthwhile to do something about US coronavirus testing costs:

The coronavirus bills passed so far — and those on the table — offer inadequate protection from a system primed to bill patients for all kinds of costs. The Families First Coronavirus Response Act, passed this month, says that the test and its related charges will be covered with no patient charge only to the extent that they are related to administering the test or evaluating whether a patient needs it.

That leaves hospital billers and coders wide berth. Mr. Cencini went to the E.R. to get a test, as he was instructed to do. When he called to protest his $1,622.52 for hospital charges (his insurer’s discounted rate from over $2,500 in the hospital’s billed charges), a patient representative confirmed that the E.R. visit and other services performed would be “eligible for cost-sharing” (in his case, all of it, since he’d not met his deductible).

This weekend he was notified that the physician charge from Emergency Care Services of New York was $1,166. Though “covered” by his insurance, he owes another $321 for that, bringing his out-of-pocket costs to nearly $2,000.

By the way, his test came back negative.

TXPR closed at 458.72, up 2.66% on the day. Volume today was 2.82-million, second-lowest of the past thirty days, ahead of only March 5.

CPD closed at 9.17, up 1.78% on the day. Volume was 140,404, well below the average of the past 30 trading days.

ZPR closed at 7.15, up 2.88% on the day. Volume of 803,406 was low in the context of the past 30 trading days.

Five-year Canada yields were unchanged at 0.63% today.

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.