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Equities
North American markets surged Tuesday after the Federal Reserve delivered an emergency half percentage point rate cut to help offset the impact of the fast-spreading coronavirus.
The S&P/TSX composite index was up 181.41 points at 16,734.67.
In New York, the Dow Jones industrial average was up 180.77 points at 26,884.09. The S&P 500 index was up 26.03 points at 3,116.26, while the Nasdaq composite was up 67.56 points at 9,019.73.
The Fed’s move came after finance minsters from G7 countries along with central bank governors participated in a conference call early Tuesday to address issues surrounding the impact of the spread of the coronavirus after last week’s market rout. Following the call, the policy makers said they were closely monitoring the situation and pledged to use all appropriate policy tools to achieve strong sustainable growth.
Analysts had cautioned that the markets could react negatively if the conference call didn’t result in a direct call for new government spending or coordinated actions by the world’s leading central banks.
“Investors were not particularly impressed with the loose commitments coming from the G7 conference call, with policy makers promising a monetary and fiscal response, where appropriate,” OANDA senior analyst Craig Erlam said.
“I think few doubt central banks desire to provide accommodation but it’s long been argued that governments aren’t doing enough and clearly have a different definition of what’s appropriate.”
The Bank of Canada makes its next policy decision on Wednesday. Economists are increasingly expecting the central bank to also cut rates.
In its statement on Tuesday, the Fed said: “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."
On Bay Street, GFL Environmental Inc. has priced shares in its initial public offering below its target range after last week’s global market rout, although it remains one of Canada’s largest equity financings at a total of $2.95-billion. Shares will be listed in Toronto and New York under the symbol GFL. The stock is expected to begin trading this week.
U.S.-listed shares of Canadian cannabis company Tilray Inc. were down nearly 10 per cent on the Nasdaq after the company reported revenue in the latest quarter below analysts forecasts. For the most recent quarter, Tilray, which announced last month it was cutting about 10 per cent of its staff, posted revenue of US$46.9-million, down about 8 per cent from a year earlier. Analysts had been looking for a number closer to US$55.4-million. The company’s net loss for the quarter totalled US$219.1-million or US$2.14 per share compared to a loss of US$31.0-million or 33 US cents per share for the same quarter last year. The most recent quarter included non-cash charges of US$112.1-million on impairments.
In other earnings, Aecon Group Inc. reports its results after the close of trading.
Overseas, markets continued to rally in afternoon trading. The pan-European STOXX 600 was up 2.13 per cent. Britain’s FTSE 100 rose 1.55 per cent. Germany’s DAX and France’s CAC 40 gained 1.90 per cent and 1.50 per cent, respectively.
stimulus hopes bolstered European markets with the pan-European STOXX 600 jumping 2.74 per cent in morning trading. Most major sectors were in positive territory. Britain’s FTSE 100 rose 2.20 per cent. Germany’s DAX gained 2.60 per cent. France’s CAC 40 rose 2.21 per cent.
In Asia, Japan’s Nikkei fell 1.22 per cent. The Shanghai Composite Index gained 0.74 per cent. Hong Kong’s Hang Seng ended down 0.03 per cent.
Commodities
Crude prices continued to rebound with traders pinning hopes on coordinated stimulus efforts by global central banks and deeper production cuts from OPEC and its allies.
The day range on Brent crude is US$52.28 to $53.77. The range on West Texas Intermediate is US$47.31 to US$48.55. Tuesday’s gains market the second day of price increases after a sharp drop last week alongside equity markets. Crude has fallen about 20 per cent since its January peak.
“For now, WTI is expected to hold on to its recent recovery on expectation of improved risk appetite and a tighter OPEC supply,” Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, said. “But the risk is, not any cut would do. Any disappointment from OPEC could send the market into the bears’ hands by the end of this week.”
OPEC and its allies are scheduled to meet Thursday and Friday. A technical committee has already recommended additional cuts of 600,000 barrels a day to offset the impact of the coronavirus on demand. Reports, however, have suggested that the group is considering a cut of as much as 1 million barrels a day.
According to a Reuters report, Leonid Fedun, vice-president of Russia’s second-biggest oil producer Lukoil, said OPEC’s proposal to cut oil production by up to 1 million barrels per day would be enough to balance the market and lift Brent prices back to US$60 a barrel. Mr. Fedun’s comments suggest Russia may be willing to agree to OPEC’s proposals for fresh cuts to output. So far, Russia has been slow to back such a move.
Later in the day, markets also get the first of two weekly reports on crude stockpiles with new figures from the American Petroleum Institute. Analysts are expecting inventories to climb for a sixth week with stocks seen rising more than 3 million barrels last week. Refined product inventories are expected to decline.
Gold prices, meanwhile, gained as traders anticipate rate cuts by the world’s central banks.
Spot gold climbed by 0.4 per cent to US$1,596.61 per ounce, after a 0.4 per cent gain on Monday. U.S. gold futures advanced 0.1 per cent to $1,597.10.
“Gold is caught in a policy tango getting tugged to and fro between the monetary policy deluge and the frothy risk-on sentiment,” AxiCorp strategist Stephen Innes said. “But it’s hard to ignore the bullish fundamental, which suggests gold’s uptrend to resume before long, but it’s not the easiest of trades to time as last week’s wicked decline may have a lasting negative impact on investors.”
Currencies
The Canadian dollar was slightly weaker, trading below the 75-US-cent mark in early going as markets await the Bank of Canada’s next move.
The day range on the loonie so far is 74.81 US cents to 75.08 US cents.
Canada’s central bank delivers its latest rate decision on Wednesday morning and markets are increasingly looking for a quarter point rate cut as the spread of the coronavirus sparks economic uncertainty around the globe.
“The Canadian dollar is a little softer on the day so far with early Asian pressure on the currency coinciding more or less with the [Reserve Bank of Australia’s] rate cut announcement, solidifying the virtual 100 per cent expectation that the BoC will follow suit tomorrow,” Shaun Osborne, chief FX strategist with Stociabank, said.
“Pressure on the CAD has been mitigated to some extent by a firm — so far — rebound in crude oil prices. With a rate cut fully priced in for this week and expectations still suggesting a strong chance of a further ease in the weeks ahead — which implies a clearly dovish outlook in the policy statement — the main risk, however low, for the CAD is that the BoC opts to sit on its hands a little longer tomorrow.”
On global currency markets, the yen and the Swiss franc gained as investors continued to opt for safer holdings. The U.S. dollar fell as much 0.5 per cent to 107.67 yen and to 0.9573 francs after Reuters reported that the G7 draft statement had no fresh fiscal or monetary pledges.
The U.S. dollar index was 0.1 per cent higher at 97.641 and the euro was 0.2 per cent lower at US$1.111
The Australian dollar also gained after the Reserve Bank of Australia cut interest rates by only a quarter percentage point, matching market forecasts. Traders had been braced for a bigger cut in the wake of last week’s market turmoil.
More company news
Hudson’s Bay Co executive chairman Richard Baker will take over as chief executive officer, a source familiar with the matter told Reuters. Current CEO Helena Foulkes, who has been at the helm since 2018, will step down, the source added. The move comes just days after the company won shareholders’ approval to take the Canadian department store operator private by Baker.
Target Corp forecast full-year earnings largely below analysts’ estimates and reported quarterly revenue for the holiday season below already lowered expectations, as the retailer’s online sales growth lost momentum. Target’s comparable digital sales rose 20 per cent in the fourth quarter, compared with 31-per-cent growth reported in the third quarter as well as in the year-earlier period. The retailer also said it expects adjusted earnings of US$6.70 to US$7 per share for fiscal 2020, the mid-point of which was below analysts’ estimates of US$6.87 per share, according to IBES data from Refinitiv.
The Globe’s Jeffrey Jones and Andrew Willis report that Just Energy Group Inc.’s third-largest shareholder is looking to unseat most of the gas and power retailer’s board of directors as its stock has floundered amid a lengthy search for buyers. Rob Snyder, a Dallas-based investor and former competitor who owns 9.3 per cent of Just Energy, submitted shareholder proposals late last week to increase the number of directors on the board to eight from six, and has put forward a slate of six new nominees, including himself.
Visa Inc warned that its second-quarter revenue growth would be slower than its previous forecast, becoming the latest payments services provider to be affected by the coronavirus outbreak. The company said it expects current-quarter revenue growth to be between 2.5 and 3.5 percentage points lower than its previous forecast of low double digit growth, when compared with the first quarter.
Thermo Fisher Scientific Inc has agreed to buy German genetic testing company Qiagen in a US$11.5-billion deal as the U.S.-based group looks to bolster its health diagnostic business. Qiagen, which has its main operations in Germany but is headquartered in the neighbouring Netherlands, is one of the world’s largest suppliers of products to prepare tissue and blood samples for advanced testing.
Economic news
Euro zone CPI and jobless rate
With Reuters and The Canadian Press
Terry Weber