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Equities

Canada’s main stock index plunged at the opening bell Monday as a deep global equities rout continues despite an emergency weekend rate cut by the U.S. Federal Reserve. In the United States, markets were again halted almost immediate after the start of trading after stocks plunged on uncertainty over the global impact of the spread of the novel coronavirus.

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At 10:11 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 1,425.46 points, or 10.39 per cent, at 12,290.87. At times during the morning session, the index was off by more than 13 per cent.

Financial stocks were off more than 9 per cent. Materials shares, which include gold miners, fell by 7 per cent as bullion prices slid. Energy shares dropped 14 per cent amid a sharp sell off in the crude market.

South of the border, the Dow Jones Industrial Average was down 2,250.46 points, or 9.71 per cent, at 20,935.16 at 9:30 a.m. ET, the S&P 500 was down 220.55 points, or 8.14 per cent, at 2,490.47 and the Nasdaq Composite was down 482.15 points, or 6.12 per cent, at 7,392.73.

The declines triggered an automatic 15-minute trading halt. If the S&P 500 falls 13% once trading resumes, it will trigger a level-2 circuit breaker and halt trading again for 15 minutes, according to Reuters.

Monday’s declines come despite a surprise move by the Fed on Sunday, which saw the central bank cut rates to near zero and launch a US$700-billion quantitative easing program of bond purchases.

“Central banks led by the U.S. shot off a bazooka of lower interest rates and quantitative easing but it has missed target,” Jasper Lawler, head of research for London Capital Group, said. “Markets are back into free fall. Friday’s gains have evaporated and shares are headed deeper into bear market territory."

“A second emergency rate cut three days before the FOMC (Federal Open Market Committee) meeting smacks of desperation,” Mr. Lawler said. “It’s the same reaction we saw in markets to the first 0.5-per-cent cut. Presumably central bankers wished to appear assertive but they look impotent to the coronavirus scare.”

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The Bank of Japan also announced early Monday that it would expand purchases of stocks, bonds and other assets and offer zero interest, one-year loans to companies to help them avert a financial shortfall. New Zealand’s central bank also cut rates on Sunday. On Friday, the Bank of Canada cut its key lending rate by another half percentage point at an emergency press conference with Federal Finance Minister Bill Morneau.

“While these moves may go some way to easing any potential blockages in the plumbing of the financial markets, they won’t adequately compensate for the upcoming economic shocks that are about to come our way as a result of the events currently unfolding across Europe, as borders get closed and populations get locked down,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

“Central banks have played their part in the past few weeks, it is now up to global policymakers, G7, and or G20 to step in with large scale fiscal measures in the coming weeks and months to complement these measures.”

On Monday, Prime Minister Justin Trudeau is set to address Canadians around 1 p.m. ET.

In Europe, all major sectors in the pan-European STOXX 600 were in the red in afternoon trading. Britain’s FTSE 100 fell 7.32 per cent. Germany’s DAX sank 9.52 per cent and France’s CAC 40 fell 10.88 per cent.

In Asia, Japan’s Nikkei closed Monday’s session down 2.46 per cent. The Shanghai Composite Index lost 3.40 per cent. Hong Kong’s Hang Seng finished down 4.03 per cent.

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On the corporate side, Calgary-based Vermilion Energy Inc. announced early Monday that it was cutting its 2020 capital budget by $80-million to $100-million. It also slashed its monthly dividend from 11.5 cents to 2 cents, citing the impact of the global decline in commodity prices. Crescent Point Energy Corp. also said it is cutting its capital spending program by about 35 per cent. Crescent Point also said, after payment of the first quarter dividend of 1 cent a share on April 1, it would revise its payout to 1 cent per share per year. It said the move gives it additional flexibility in the current environment.

On Wall Street, airline stocks continue to struggle. Shares of Delta Air Lines. Inc were down more than 17 per cent. United Continental Holdings Inc. fell more than 25 per cent. In this country, Air Canada shares were down more than 18 per cent in early trading in Toronto.

Early Monday, the world’s three top airline alliances oneworld, SkyTeam and Star Alliance issued a rare joint statement urging governments and regulators to step in to help the industry.

“The unprecedented circumstances triggered by the coronavirus outbreak pose an existential threat not only to the airline industry but more generally to global trade and commerce, and social connectivity,” said Jeffrey Goh, chief executive of Star Alliance which includes Air Canada. “As airlines stretch their limits to manage the crisis, it is equally critical for governments and stakeholders to avoid further burdens and step up with measures, as some have, that will ensure the future of the travel industry.”

Commodities

Crude prices continued to fall alongside tanking equity markets with weakening demand and increased output from key producers hammering sentiment.

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The day range on Brent so far is US$31.28 to US$35.84. Brent crude fell as much as 10 per cent ahead of the North American open. Last week, Brent dropped 25 per cent, the biggest weekly decline since the financial crisis of 2008. The range on West Texas Intermediate is US$29.75 to US$33.75. At last check WTI was down about 8 per cent.

Analysts said Sunday’s Fed rate cut did little to stem the decline in crude prices.

“Fed action will not repair global supply chains, and it is not even clear at this point if fiscal deluge will be useful either with travel on planes, trains or even automobiles getting curtailed around the globe," AxiCorp strategist Stephen Innes said.

"A Fed interest rate cut would have helped immensely if the demand was anchored, but, since global oil demand has become wholly unhinged due to the COVID-19 swath of economic carnage, the path of least resistance remains lower."

Demand concerns have been further complicated by the collapse of an agreement among OPEC nations and their allies to curb production after Russia refused to agree to extending and deepening those reductions. In response, Saudi Arabia has raised output and cut prices on sales to Asia and Europe. A Reuters report on Monday citing unnamed sources said a technical meeting of the OPEC+ group had been called off.

“Fear remains the crux of the problem here as market players remain unconvinced that monetary policy easing and liquidity injections will solve an essentially healthcare crisis,” OCBC Bank’s economist Selena Ling told Reuters.

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“The end-game to me remains not about more policy bazookas, but a peak in global COVID-19 infections and fatalities, and, or a COVID-19 vaccine cure on the horizon.”

In other commodities, gold prices gave up early gains. Just before the opening bell in North America, spot gold was down 5 per cent at US$1,451.70.

“The need for cash is still weighing on gold, and while the market is likely oversold, this is currently the dominant factor driving prices, so it might take more of a price decline to encourage the gold as a hedge for all seasons crowd back to the fray,” Mr. Innes said.

Currencies

The Canadian dollar was hovering around 72-US-cents early Monday as declining crude prices and sinking equities markets continue to weigh on the Canadian currency.

The day range on the loonie so far is 71.89 US cents to 72.81 US cents.

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“An impressively concerted range of monetary, regulatory and (promised) fiscal measures announced by the Canadian authorities Friday afternoon have been overshadowed by weekend events elsewhere, leaving the Canadian dollar flailing and nearing $1.40 again as risk assets melt and crude oil slides back under US$30,” Shaun Osborne, chief FX strategist for Scotiabank, said.

“Given the Fed’s unprecedented action Sunday, it seems entirely possible that the BoC will come back with another rate cut very shortly—perhaps even today after Friday’s 50 basis points ease (to 0.75%).”

In terms of economic news, markets will get Canadian inflation numbers on Wednesday, with lower gasoline prices likely weighing on the consumer price index for February. January retail sales numbers are due on Friday, although those figures will likely feel dated to the markets given current events.

In other currencies, the U.S. dollar found its footing after initially declining in the wake of the Fed rate cut. The U.S. dollar index was last up 0.1 per cent at 97.938, way off the day’s highs. Against the yen, the U.S. dollar was down 1.5 per cent as investors sought out safe-haven currencies. The euro gained 0.5 per cent to US$1.1175.

More company news

Clothing retailer Aritzia Inc. says it will close its outlets effective today in response to the COVID-19 pandemic. “Our goal is to do our part for the global well-being. As we navigate this complex and challenging landscape, we feel this is the best decision for our people, our clients, our partners and our community as a whole,” Brian Hill, founder, chief executive officer and chairman, said in a statement.

MTY Food Group Inc. says it postpone collection of royalties for a four-week period starting on March 17. “We are cognizant of the overall impact the decreased traffic is having on our restaurants and that we will need to support our franchisees during this difficult period," the company said in a statement.

France’s competition watchdog on Monday fined iPhone maker Apple Inc. 1.1 billion euros (US$1.23 billion), saying it was guilty of anti-competitive behaviour towards its distribution and retail network. The fine, the biggest ever levied by the French antitrust body, comes at a time of heightened scrutiny on U.S. tech giants by European regulators, who have been delving into the firms’ powerful market position, the tax they pay, and how they protect consumers’ privacy. Apple said it would appeal the watchdog’s ruling, which it said was at odds with legal precedent in France.

AMC Entertainment Holdings Inc said on Monday it will limit attendance at its U.S. theaters to a maximum of 50 people per show, effective immediately, due to the spread of coronavirus, sending its shares down 13 per cent in early trading. The U.S. Centers for Disease Control and Prevention (CDC) on Sunday issued a guidance to cancel or postpone events throughout the country that consist of 50 people or more for the next eight weeks.

Walt Disney World will close all of its hotels in Florida due to growing concern over the new coronavirus, Walt Disney Co. said Monday. In a tweet, the company said the hotels would not close until 5 p.m. on Friday to give guests time to arrange other accommodations. The company also said all Disney stores nationwide will close on Tuesday, including in Disney Springs in Orlando, Florida, and Downtown Disney in Anaheim, California. To help contain the spread of the disease, Walt Disney World, Universal Orlando Resort, SeaWorld and Busch Gardens closed on Sunday night for at least two weeks. Disney shares were down nearly 9 per cent in morning trading in New York.

Economic news

The Canadian Real Estate Association says national home sales rose 5.9 per cent on a monthly basis in February. Year-over-year actualy sales rose 26.9 per cent. The actual, not seasonally adjusted, national average sale price rose 15.2 per cent year-over-year.

(4 p.m. ET) Foreign purchases of U.S. securities for January.

With Reuters and The Canadian Press

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