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Equities

Stocks on both sides of the border jumped early Tuesday with stimulus hopes buoying sentiment a day after global markets endured their worst rout since the financial crisis.

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As of 9:42 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 377.03 points, or 2.6%, at 14,891.27. On Tuesday, the index lost 10.3 per cent, its biggest drop since October 1987,

Energy stocks, which tanked a day earlier, recovered some of their losses to turn higher. Financials were up 2.8 per cent. Industrial stocks rose 3.6 per cent.

In the U.S., the Dow Jones Industrial Average rose 601.98 points, or 2.52 per cent, at the open to 24,453.00 and the S&P 500 opened higher by 66.92 points, or 2.44 per cent, at 2,813.48.

The Nasdaq Composite gained 269.09 points, or 3.38 per cent, to 8,219.76 at the opening bell.

“Today will be a like a hangover,” Jasper Lawler, head of research with London Capital Group, said. “All you can do is put a brave face on all the bad things that happened the day before.”

He said Monday’s declines indicate a market trying to price in the economic fallout from an oil price war and the impact of the spread of the coronavirus.

“Quarantines, goods shortages even civil disorder need to be priced in,” he said. “We think we are probably not there yet.”

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Oil companies, he said, took the brunt of the hit with firms like BP losing nearly 20 per cent of their market value. Ultimately, he said, the oil majors will survive the rout but face the “ugly choice” of either cutting dividends or taking on more debt. “We think the [dividends] will go,” Mr. Lawler said.

Markets got a lift when U.S. President Donald Trump raised the prospect late Monday of a payroll tax cut in a bid to offset the damage from the spread of the novel coronavirus.

“We are to be meeting with House Republicans, Mitch McConnell, and discussing a possible payroll tax cut or relief, substantial relief, very substantial relief,” Mr. Trump told a press briefing.

Other stimulus efforts were also viewed as positive by the markets. The U.S. Federal Reserve raised the size of its fund injections into the markets. In Europe, the European Central Bank meets Thursday and is expected to follow the leads of its global counterparts to act. Britain also gets its annual budget on Wednesday with suggestions being raised that it could contain coordinated stimulus measures with the Bank of England. Japan’s economy minister also said that government wound’t hesitate to take necessary steps to offset the impact on the Japanese economy.

Still, analysts cautioned that market volatility remains and measures like payroll tax cuts will have a bigger long-term benefit rather than immediately calm market fears.

“Ultimately, the sustainability of any rebound will hang on the policies we hear from various governments and central banks over the coming days,” OANDA senior analyst Craig Erlam said. “Significant efforts to contain the spread and support companies facing cash shortages will be most effective in the near-term, far more so than just a constant reminder that fatality numbers are currently low and stocks are cheap. Those reassurances will fall on deaf ears.”

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In corporate news, Cenovus Energy said Tuesday it is cutting capital spending for the year by 32 per cent and suspending its crude-by-rail program. “These measures are being taken in response to the recent significant decline in world benchmark crude oil prices,” Cenovus said. “The company continues to work toward funding its revised capital program and current dividend within cash flow in this challenging commodity price environment.” Cenovus shares were up 11 per cent in early trading.

Overseas, European markets held most of their early gains by afternoon. The pan-European STOXX 600 was up 2.72 per cent. Britain’s FTSE 100 rose 3.35 per cent. Germany’s DAX and France’s CAC 40 gained 2.54 per cent and 3.06 per cent, respectively.

In Asia, Japan’s Nikkei recovered from early losses to finish up 0.85 per cent. The Shanghai Composite Index rose 1.82 per cent. Hong Kong’s ended up 1.41 per cent.

Commodities

Crude prices jumped early Tuesday after seeing the biggest daily losses since the Gulf War during the previous session with hopes for stimulus efforts and the slowing spread of the virus in China helping offset concerns over the threat of a price war between Saudi Arabia and Russia.

The day range on Brent so far is US$35 to US$37.38 a barrel. The range on West Texas Intermediate is US$30.20 to US$33.73. Both benchmarks were up about nearly 10 per cent in the predawn hours. Both sank 25 per cent on Monday to post their biggest single-day declines since the Gulf War after the collapse of a production agreement by OPEC and its allies.

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A Reuters report on Tuesday quoted Russian oil minister Alexander Novak as saying he did not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June. Saudi Arabia’s energy minister, however, told the news agency that he did not see a need to hold an OPEC+ meeting in May-June if there was no agreement on what measures should be taken to deal with the impact of the coronavirus on oil demand and prices.

OANDA’s Craig Erlam cautioned that Tuesday’s gains were “nothing to get excited about.”

"Sentiment in the market was already fragile enough without an oil price war, although consumers worried about recession will hardly be feeling too down," he said.

“If Saudi Arabia was hoping to bully Russia back to the table then this was certainly the opportune moment, it’s just not clear whether they will allow themselves to be bullied.”

He added that Russia could see the latest declines as an opportunity to hit a heavily indebted U.S. shale industry that has been chipping away at market share in recent years.

“In the short-term, it’s tough to be particularly bullish about oil prices, despite a decent rebound today,” he said. "That said, if we approach yesterday’s lows again, traders may take a longer term view as the downside for prices becomes far more limited at these levels."

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In other commodities, gold prices slumped as the broader market rebounded.

Spot gold declined 1 per cent to US$1,663.16 per ounce, after hitting its highest since December 2012 at US$1,702.56 on Monday. U.S. gold futures fell 0.6 per cent to US$1,664.80.

“Markets are getting a little bit edgy. Risk is turning on due to the fiscal policy measures out of the United States and Japan, which is negative for gold over the short term,” AxiCorp strategist Stephen Innes said.

Currencies

The Canadian dollar was slightly firmer after dropping to its lowest level in three years on Monday amid the collapse in oil prices.

The day range on the loonie so far is 72.97 US cents to 73.48 US cents.

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“All markets have seen a reversal of yesterday’s moves today,” RBC chief currency strategist Adam Cole said, noting a broad rebound in risk sentiment.

For the loonie, there were no major economic reports due Tuesday, suggesting the dollar will be at the mercy of commodity prices and broader market moves through the session.

On global markets, the U.S. dollar recovered Tuesday after big losses against the yen, euro and Swiss franc during the previous session.

Against a basket of currencies, the U.S. dollar rose 0.2 per cent to 95.613. It rallied 1.9 per cent against the yen to 104.28, off Monday’s 101.18 low.

The euro dropped 0.4 per cent versus the dollar to US$1.1385 . The U.S. dollar rose 1.2 per cent to 0.9361 Swiss franc on Tuesday, then fell to 0.9299 francs after three days of heavy selling pushed it to its lowest in almost five years. Against the pound, the U.S. currency rose 0.5 per cent to $1.3067, according to Reuters.

U.S. Treasury yields, meanwhile, bounced off historic lows. The yield on the U.S. 10-year note was higher at 0.723 per cent at last check. The yield on the 30-year note was also up at 1.181 per cent.

More company news

American Airlines Inc said it would cut domestic capacity by 7.5 per cent in April and international by 10 per cent for the upcoming summer season, in response to weakening travel demand due to the coronavirus.

China’s industry ministry said on Tuesday it has urged Tesla Inc to keep its China-made vehicles consistent after some Chinese customers complained the U.S. electric vehicle maker put less advanced computer chips in their cars. Tesla started delivering China-made Model 3 electric sedans from its $2 billion Shanghai factory in December, but some buyers said on Chinese social media that the control units in their cars run on HW2.5 chips, which are less advanced than the HW3.0 chips listed on their specification sheets. The Ministry of Industry and Information Technology urged Tesla on Tuesday to ensure product consistency, quality and safety, according to a statement on the ministry’s website.

New Wells Fargo & Co Chief Executive Charlie Scharf is to testify on Tuesday before the House Financial Services Committee. Since taking over the scandal-plagued bank late last year, Scharf has shaken up its leadership and overhauled the bank’s business lines, winning over some regulators in the process. Last week the Office of the Comptroller of the Currency, the bank’s top regulator, said it was encouraged by the new leadership. Lawmakers, however, have so far been unimpressed.

Marathon Oil Corp said on Tuesday it was scaling back its drilling activity in some areas and cut its spending by at least US$500-million, joining other shale oil producers in reducing drilling as oil prices tumble to historic lows. Crude prices suffered their biggest one-day rout since the 1991 Gulf War on Monday, as top oil producers Saudi Arabia and Russia began a price war that threatens to overwhelm global oil markets with supply.

Honeywell International Inc reaffirmed its first-quarter and full-year forecasts, and said it was monitoring the global macro-economic situation. The company has previously said it expects 2020 sales of between US$36.7-billion and US$37.8-billion, and earnings per share of US$8.6 to US$9.

Economic news

Quebec and New Brunswick provincial budgets

With Reuters and The Canadian Press

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