Month: March 2020

Click for Big

The markets were highly relieved today to learn that coronavirus is no longer considered a Democrat/Media plot:

The stock market roared back to life on Friday, with the S&P surging 9.3 percent after President Trump said the government would speed up coronavirus testing for Americans. In doing so, he delivered investors exactly the message they had been waiting to hear — a half-hour before the market closed.

Just one day after tumbling 9.5 percent in what was its worst day in more than 30 years, the S&P 500 stock index rose by roughly the same amount. The market was up throughout the day, then dipped when the president started speaking, only to change direction once he began discussing the administration’s efforts to speed testing. Millions of virus testing kits would become available, he said — though he added that he did not think so many would be needed.

For investors starved for reassuring news, those promises were enough to ignite a rally that sent the S&P 500 to its best one-day performance since 2008.

This had an effect:

Canada’s main stock market notched on Friday its biggest gain since October 2008, as Canada ramped up stimulus to ease the economic impact of the coronavirus outbreak, while the Canadian dollar edged higher after hitting an earlier four-year low.

The Bank of Canada unexpectedly cut its overnight rate by 50 basis points to 0.75%, its second half-point cut in nine days, and the government said it would offer $10-billion in credit support to businesses.
…
The Toronto Stock Exchange Composite Index, was up 8% at 13,520.53, recovering some ground after a record decline on Thursday. For the week, the index was on track to fall about 15%, its biggest drop in Refinitiv Eikon data going back to July 1979.

Nine of the TSX’s 10 main groups were higher, led by a 10.1% gain for the heavily-weighted financial services sector, while energy was up 5.6%.

The price of oil, one of Canada’s major exports, had its biggest weekly slide since the 2008 financial crisis despite settling 0.7% higher on Friday, as the coronavirus outbreak threatened demand and crude producers promised more supply.
…
The Canadian dollar was trading 0.1% higher at 1.3912 to the greenback, or 71.88 U.S. cents, having touched its weakest intraday level since February 2016 at 1.3996.

Canadian government bond yields rose across a steeper yield curve, with the 10-year yield up 16.1 basis points at 0.754%. On Monday, the 10-year yield hit a record low at 0.233%.

In New York, the Dow Jones industrial average was up 1,985.00 points at 23,185.62. The S&P 500 index was up 230.38 points at 2,711.02, while the Nasdaq composite was up 673.07 points at 7,874.88.

U.S. 10-year Treasury yields jumped back over the 1% level on Friday after President Donald Trump declared a national emergency over the spreading coronavirus, a move that sent stocks soaring.

The 10-year note yield, which was at 0.934% before the president’s Rose Garden address, rose to 1.019%, up from 0.852% at Thursday’s close.

Credit support to businesses?

Finance Minister Bill Morneau announced that $10-billion of immediate credit will be available to Canadian businesses impacted by the coronavirus through Ottawa’s Business Development Bank and Export Development Canada

He also promised to unveil a “significant stimulus package” next week, well before the March 30 federal budget.

TXPR closed at 473.71, down 0.91% on the day. Volume today was 4.92-million, third-highest of the past thirty days, behind March 9 and March 10.

CPD closed at 9.45, down 0.63% on the day. Volume of 653,463 was the highest of the past thirty days, well ahead of second-place March 9.

ZPR closed at 7.32, up 0.55% on the day. Volume of 1,384,125 was only the fourth-highest of the past week.

Five-year Canada yields were up 20bp to 0.67% today. Which sounds like an odd reaction to a Bank of Canada rate cut, but things have become so distorted in the past three weeks that unsnarling the mess will be a puzzle in itself.

So, it was a day and a half, it was:

Stocks continued their plunge on Thursday, as President Trump’s latest effort to address the coronavirus outbreak — a ban on the entry from most European countries to the United States — disappointed investors who have been waiting for Washington to take steps to bolster the economy.

Trading was turbulent, with stocks staging a brief comeback as investors reacted to the Federal Reserve’s decision to offer at least $1.5 trillion worth of loans to banks to help smooth out the functioning of the financial markets. But the selling picked up again by midafternoon.

The S&P 500 closed down about 9.5 percent, its biggest daily drop since the stock market crashed in 1987, on what came to be known as Black Monday.

… and …:

The main UK index dropped more than 10% in its worst day since 1987.
…
The S&P 500 fell 9.5% and the Nasdaq ended 9.4% lower, while losses on the UK’s FTSE 100 wiped some £160.4bn off the market. In France and Germany, indexes cratered more than 12%.

… and …:

Canadian stocks plunged Thursday, suffering their biggest loss since 1940 and closing at the lowest level in four years, as fear enveloped trading desks worldwide about the economic consequences of the growing coronavirus crisis.

The S&P/TSX composite index plummeted 1,761.64 points, or 12.34 per cent, to 12,508.45 with every sector in the red. Since the index’s peak on Feb. 20, $830-billion of market value has now been wiped out. The impulse to sell left few safe havens; even bitcoin tumbled. The energy sector was bloodied again, with the U.S. crude price falling 6 per cent.

Not since May of 1940, the month when Germany invaded France during World War 2, has the Canadian stock market seen a greater loss on a percentage basis.
…
The New York Federal Reserve pumped more liquidity to banks, briefly reversing some of the day’s losses. It was the third substantial increase in repo support announced by the U.S. Federal Reserve this week, a sign the Fed is taking drastic steps to inject more liquidity into the banking system as markets show signs of stress.

The U.S. dollar rose indiscriminately, in yet another sign of market stress. The Canadian dollar tumbled to four-year lows.
…
Fed fund rate futures are now pricing in a 1.0 percentage point cut, rather than 0.75, at a policy review next week.
…
Bitcoin plunged 23.3%, amid wild volatility in cryptocurrency markets.

Trump’s attempt to cast Europe as the villain did not go unremarked:

“The European Union disapproves of the fact that the U.S. decision to impose a travel ban was taken unilaterally and without consultation,” said a terse statement on Thursday from European Commission president Ursula von der Leyen and European Council president Charles Michel. “The coronavirus is a global crisis, not limited to any continent and it requires co-operation rather than unilateral action.”

I noticed last night that I was running short of milk and paper towels, so trotted up to Blah-blahs this afternoon to replenish my supply. Holy Smokes, the place was a madhouse! It was jammed with people wheeling around carts full to the brim … I suppose I might have seen it busier on occasion, like on a Saturday before it closes for two days at Christmas, but I can’t remember such a sight!

TXPR closed at 478.08, down 7.59% on the day. Volume today was 4.52-million, lowest of the week so far, which some might view as encouraging.

The Total Return version of TXPR closed today at 1208.11. The value of this index on June 29, 2007, the first month-end following the launch date, was 1217.73, so total return has been negative over the past TWELVE YEARS AND EIGHT MONTHS and a little bit, which we can round off to “forever”. That’s before fees and expenses. 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 9.51, down 7.22% on the day. Volume of 421,493 was the third-highest of the past thirty days, behind only March 9 and March 11.

ZPR closed at 7.28, down 9.00% on the day. Volume of 1,621,137 was second-highest of the past 30 trading days days, behind March 9.

Five-year Canada yields were down 9bp to 0.47% today. The lowest value I have in my database of weekly observations is 0.48%, reached on February 10, 2016.

And my own preferred share reporting shows massive volume, huge moves and so many candidates for the “Bad Quote Hall of Shame” that I’m not going to check any of them. Interestingly, the “Bank FixedReset NVCC non-compliant” subindex, comprised of the three remaining bank issues which may reasonably be expected to be redeemed in the near future, underperformed discount FixedResets. Which is a little odd; have we reached the point of maximum panic?

The New York Times comments:

Stocks plunged on Wednesday, with the Dow Jones industrial average falling into a bear market, in a drop that reflected investors’ fear that Washington won’t be able to muster a response to the economic crisis triggered by the spreading coronavirus.
…
With oil falling again, energy stocks like Apache Corporation and Occidental Petroleum led the slide in the S&P 500. Apache fell about 24 percent, while Occidental fell 18 percent.

Boeing tumbled 18 percent, the biggest drop among components of the Dow Jones industrial average. A person with knowledge of the matter said the carrier planned to drawdown a $13.8 billion credit line to shore up its cash position in the face of uncertainty over the coronavirus outbreak. Boeing also reported that it had lost more orders for its grounded 737 Max.
…
Starting Thursday and continuing through April 13, the Fed will offer at least $175 billion in daily overnight repo operations — up from $150 billion — and at least $45 billion in two-week repo operations twice a week, according to the statement.

The Fed will also offer three one-month repo operations of at least $50 billion.

“These operations are intended to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures,” the New York Fed said in a statement.

It was the second time this week that the Fed ramped up its offering of repurchase agreements and came as investors are increasingly concerned about proper functioning of the financial system. Some economists are expecting the Fed to do more in the coming week, like mobilizing swap agreements that help foreign central banks keep dollar funding flowing in their economies or announcing an extension to the Fed’s Treasury bill purchase program.

The Globe & Mail remarks:

The Dow fell 1,464.63 points or 5.9 per cent, erasing Tuesday’s promising rebound and leaving the blue-chip index down 20.3 per cent since from its high point on February 12 — passing the 20 per cent threshold that typically defines a bear market.

Canada’s S&P/TSX Composite Index fell 4.6 per cent on Wednesday, and is also down 20.5 per cent from its highs.
…
This marks the third bear market for the TSX over the past decade: The index fell 24.4 per cent between 2014 and 2016, and 22 per cent in 2011.
…
The Canadian energy sector fell 4.8 per cent on Wednesday, bringing the overall decline since February to more than 30 per cent. The sector is now lower than it was at the depths of the 2008 financial crisis.

TXPR closed at 517.37, down 2.96% on the day. Volume today was 4.71-million, third-highest of the past 30 trading days days, behind March 10 and March 9.

It is noteworthy that the Total Return version of TXPR closed at 1,304.43 today. I will note that the value of this index on September 30, 2010 was 1320.92, so total return has been negative over the past NINE YEARS AND FIVE MONTHS and a little bit. That’s before fees and expenses. 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 10.25, down 3.48% on the day. Volume of 432,157 was the second-highest of the past thirty days, behind only March 9.

ZPR closed at 8.00, down 1.60% on the day. Volume of 1,286,274 was third-highest of the past 30 trading days days, behind March 10 and March 9.

Five-year Canada yields were down 8bp to 0.56% today. The lowest value I have in my database of weekly observations is 0.48%, reached on February 10, 2016.

And my own preferred share reporting shows massive volume, huge moves and so many candidates for the “Bad Quote Hall of Shame” that I’m not going to check any of them.

PerpetualDiscounts now yield 5.59%, equivalent to 7.27% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.84% (!), so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened dramatically to 445bp from the 390bp reported March 4. Today’s figure is essentially equal to the widest spread I have ever recorded, on November 26, 2008 when trouble with the BCE buyout caused a short-lived spike in PerpetualDiscount bid yields.

Another day of enormous volume. Husky Energy issues got hammered; but the common actually gained ground today. Note, however, that HSE common closed at 3.64 today, compared to ‘comfortably over 8.00’ in the first two weeks of February.

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.
…
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.
…
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.
…
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.
…
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!