Canadian and U.S. stocks jumped at the open, as signs that Washington was nearing a deal on a $2 trillion economic rescue package gave a shot of optimism to markets reeling under the biggest selloff since the global financial crisis.
The Dow Jones Industrial Average rose 1,130.26 points, or 6.08%, at the open to 19,722.19. The S&P 500 opened higher by 107.04 points, or 4.78%, at 2,344.44. The Nasdaq Composite gained 335.47 points, or 4.89%, to 7,196.15 at the opening bell.
The S&P/TSX Composite Index was up 6.65%, or 747.10 points, at 11,993.89. Every sector was in the green, with many posting similar gains as the benchmark index, including banks, energy and gold stocks.
If the TSX rally holds, this could be the second biggest day of gains since the crisis began a few weeks ago.
Both gold prices and crude oil values are posting strong gains of just over 5 per cent themselves. Despite a gloomy outlook for the oil patch and capital spending plans being slashed, Canadian energy stocks today could see a reprieve; both Suncor and Canadian Natural Resources, for instance, are up around 5 per cent.
Today’s rally, if it sticks, could reverse what happened at the start of this week. On Monday, the Toronto Stock Exchange fell 5.26 per cent, nearly double the losses in the major U.S. indexes.
The Street is now showing confidence that agreement on a stimulus deal in Washington is imminent to help rescue the economy from a deep and prolonged downturn because of the coronavirus crisis. The Fed’s aggressive actions announced Monday to help keep the plumbing in money markets flowing has also been key in turning around sentiment. President Trump’s musings that “America will again and soon be open for business” might also be creating some optimism among trading desks (now in home offices everywhere).
European stocks are posting major rallies of their own - the Stoxx 600 index is up 5.2 per cent. And that followed sturdy gains in Asia overnight, as sentiment shifted considerably from Wall Street hours, with the Nikkei up 7.1 per cent and the Shanghai index up 2.3 per cent.
While the measures such as the Fed’s offer of unlimited bond-buying won’t immediately mitigate the economic devastation inflicted by the coronavirus outbreak, they will launch more dollars into world markets, allowing companies, funds and banks to access cash to pay creditors, supplier and end-investors.
“If you’re a believer of ‘don’t fight the Fed’ what was announced yesterday was a buy signal,” said Jasper Lawler, Head of Research for London Capital Group.
"The Federal Reserve kitchen sinking it has gone some way to calm markets. With a little time to review, there were some astonishing measures taken.
“For us there were three standout measures were Number 1: Open ended QE, which means the Fed will just keep buying as they see fit with no restraint. Number 2: Lending directly to businesses completely bypassing high street banks in the process. Number 3: Corporate bond buying where the Fed can even buy corporate bond ETFs in the stock market.”
Meanwhile, there were also signs of progress in Congress on a $2 trillion U.S. stimulus deal, which Treasury Secretary Steven Mnuchin hoped was “very close.”
Other countries are unveiling their own measures – South Korea’s ravaged market climbed 8.6 per cent after the government doubled a planned economic rescue package to 100 trillion won ($80 billion).
None of this means the coronavirus crisis is receding. In fact, a spokeswoman for the World Health Organization says case counts and deaths globally from the new coronavirus are expected to increase “considerably” when global figures are published later Tuesday.
U.S. West Texas Intermediate gained $1.54, or 6.6%, to $24.90. , supported by steps by the U.S. Federal Reserve to bolster the economy and hopes the United States will soon reach a deal on a $2 trillion.
“This is giving significant buoyancy to oil prices, at least in the short term,” said Eugen Weinberg, analyst at Commerzbank.
“It is highly questionable whether the good mood will continue on the oil market, however.”
Palladium surged 12% on Tuesday, on track for its biggest daily rise since 2000 as major producer South Africa locked down due to the coronavirus, while gold soared over 3% as a fresh round of stimulus measures paused a run for cash amongst investors.
Auto catalyst metal palladium rose to $1,927.23 per ounce, while platinum rose 6.8% to $686.39, also helped by the 21-day shutdown.
Currencies and bonds
With crude rallying, the Canadian dollar is up about half a cent this morning, once again nearing the 70 cents level.
“Better risk appetite and firmer crude oil prices are lifting the CAD, alongside its G10 peers—but the CAD’s rise is relatively weak, with gains restrained by the prospect of a virtual shutdown of the economy to try and limit the contagion form the coronavirus outbreak,” Scotiabank said in a note this morning. “Government and Bank of Canada action to mitigate the impact of the COVID-19 outbreak has been aggressive but provides little protection for the CAD. We expect the CAD to continue to trade in line with the broader risk mood for now.”
Other corporate news
Chevron Corp said on Tuesday it was lowering its forecasts for spending and Permian production by 20% for the year, and will suspend share buybacks as oil companies find themselves in one of the worst times in decades.
Precision Drilling Corp. says it is reducing staff, cutting salaries and lowering its capital spending plan in response to the COVID-19 pandemic and current market conditions. The company did not immediately say how many jobs it was cutting as part of the plan. The cuts come as Precision lowers its 2020 capital spending plan to $48 million, compared with earlier expectations for $95 million, and warns that further changes may be considered as the year progresses.
Hundreds of employees are being sent home in northern Saskatchewan as Cameco Corp. suspends production at its Cigar Lake uranium mine and partner Orano Canada Inc. closes its affiliated McClean Lake uranium mill. The companies say their facilities will be placed in maintenance mode for four weeks due to the threat posed by the COVID-19 pandemic, although neither has any confirmed cases among their workforce.
Suncor Energy Inc on Monday cut its 2020 production outlook and suspended share repurchases for the year following the decline in crude oil prices and due to the economic impact of the coronavirus outbreak. The second largest Canadian crude producer revised its 2020 production outlook to a range of 740,000 barrels of oil equivalent per day (boe/d) to 780,000 boe/d, down from its previous forecast of 800,000 boe/d to 840,000 boe/d.
Bombardier today announced that it will suspend all non-essential work at most of its Canadian based operations starting this evening. This suspension includes Bombardier’s aircraft and rail production activities in the provinces of Quebec and Ontario. Employees impacted by these temporary shutdowns will be placed on furlough. Bombardier is also suspending its 2020 financial outlook as it evaluates the impact of temporarily closing its Canadian operations.
(9:45 a.m. ET) U.S. Markit Manufacturing PMI for March. Consensus is a reading of 45.0, versus 50.7 in February.
(10 a.m. ET) U.S. new home sales for February. Consensus is 755,000, down from 764,000 in January.
With files from Reuters