Canadian and U.S. stocks opened with strong gains, despite an ugly U.S. jobless claims report showing a surge of 3.28 million initial applications last week. The headline number was more than double the average Street estimate and by far the highest in history, but traders largely shrugged off the number.
The TSX is up about 3 per cent in mid-morning trade. Remarkably, that’s a gain of 21 per cent from the intraday lows reached on Monday - surpassing the 20 per cent threshold that marks the start of a bull market.
“While the size of the jump in claims may have been a surprise to the Street, considering the unprecedented measures being taken to control COVID-19, estimates may have been closer to guesses than usual as events have moved so quickly I don’t think anyone really knew what the number would be,” said Colin Cieszynski, chief market strategist with SIA Wealth Management, said in a note.
“With this report, the impact of coronavirus shutdowns on the economy starts to shift from the fearful unknown to the known and quantifiable, confirming the pressure on politicians and central banks to get in front of the slowdown and keep providing fiscal and monetary support.”
Economist David Rosenberg suggested the stock market’s rally since the number came out likely reflects the belief that even more radical stimulus is ahead.
Both Canadian and U.S. markets are coming off two days of historic gains, propelled primarily by the massive US$2-trillion stimulus package in the U.S. The Canadian government’s spending legislation to help keep its economy going - which passed royal assent Wednesday - has also lent support to the TSX.
The U.S. Senate on Wednesday backed the massive bill aimed at helping jobless workers and industries reeling from the virus, with the package heading for the House of Representatives for vote on Friday.
The number of new coronavirus cases worldwide hit a record high of over 48,000 Wednesday, bringing the total to around 470,000 and there is no clear sign of slowing in the rate of increase.
U.S. Federal Reserve Chairman Jerome Powell spoke this morning on NBC’s Today. He reiterated the Fed will aggressively provide liquidity wherever it is needed and that the timing of an economic recovery is dependent on how the virus runs its course. He said the U.S. “may well be in recession.”
Despite the alarming economic statistics, some very large asset managers are seeing a buying opportunity in global stocks. BlackRock and Credit Suisse said today it is time to get back into equities after markets rallied this week.
World stocks have risen nearly 8% so far this week and were on track for their best weekly gain since December 2011. They have recouped more than $5 trillion in the past two days.
Spotting an inflection point is not easy when the virus is still spreading rapidly across Europe and the United States, but BlackRock and Credit Suisse said they had turned slightly bullish on risk asets.
“The unprecedented actions represent the type of decisive policy response we have been calling for – and set the scene for an eventual economic recovery,” Jean Boivin, head of BlackRock Investment Institute, said on Thursday.
The world’s top asset manager said the market sell-off had created significant value for long-term investors and told clients it now favoured “rebalancing into risk assets.” Within the equity space, BlackRock said it preferred U.S. markets due to strength of Washington’s policy response and the quality of the market.
Credit Suisse, which is positive on developed market equities, said: “There is merit in being an early mover rather than wait until a market bottom has become apparent for all.” The Swiss bank said that over a six- to twelve-month horizon, equities offered “attractive value.”
Certainly, there are skeptics that the lows in the equity market have been reached. Take Lori Calvasina, head of U.S. Equity Strategy for RBC Capital Markets, in a note today: “Though we expect the S&P 500 to be higher at year-end 2020 (our S&P 500 price target is 2750), we remain unconvinced that the US equity market has seen its absolute lows for the year. Recent price action in the S&P 500 continues to travel down the path that the stock market took in September/October 2008. Additionally, we still haven’t seen retail investor bearishness return to past extremes, causing us to doubt whether investor capitulation (a necessary, though not sufficient, condition for a durable equity market bottom) has truly been seen.”
Commodities
Oil prices are lower this morning, ending three sessions of gains, as movement restrictions worldwide to contain the coronavirus destroyed demand and overshadowed expectations that a U.S. $2 trillion emergency stimulus will bolster economic activity. Brent crude and WTI are down around 2 per cent to 3 per cent.
“Oil markets received a lift from the U.S. stimulus chatter, but for the most part activity remains rudderless, awash in a sea of oil,” Stephen Innes, market strategist at AxiTrader, said.
Indeed, the outlook for oil is bleak. Goldman Sachs forecast global oil demand, which stood around 100 million barrels per day (bpd) last year, will fall by 10.5 million bpd in March and 18.7 million bpd in April. The weakening demand is leading oil refineries from Texas to Thailand to reduce operating rates.
That, in turn, will increase pressure on crude prices that Goldman expects will remain near $20 a barrel in the second quarter.
Gold is also down so far this morning, as the U.S. dollar is rising against major currencies.
Currencies and bonds
The Canadian dollar is up this morning against the greenback, and the 70 cents US level looks like it will hold for the moment. The loonie is being “helped to some extent by positive domestic headlines reflecting a sharp rebound in domestic stocks and the Federal government’s efforts to combat the effects of the COVID-19 outbreak,” said a note this morning by Scotiabank.
“But there is really little else for market to focus on other than the broader market tone and the USD’s general direction in the short run. We do think the CAD is oversold and it remains—by our reckoning—quite significantly undervalued. But, with crude oil prices still soft and poised to remain relatively weak it would seem, scope for a significant rebound—beyond a correction from heavily oversold levels—appears limited at the moment,” Scotiabank added.
Canadian government bond yields fell across a flatter curve in sympathy with U.S. Treasuries. The 10-year was down 8.3 basis points at 0.819%.
Corporate news
Construction and mining equipment maker Caterpillar Inc said on Thursday it was suspending operations at some facilities and withdrawing its 2020 outlook as it struggled with the impact of government-ordered shutdowns on its plants and supply chains. The company said it may suspend operations at more facilities, adding that it continues to run the majority of its U.S. domestic operations and plans to continue operations in other parts of the world.
Harley-Davidson Inc on Thursday withdrew its financial forecasts as the coronavirus outbreak hurts its supply chain, and warned further disruptions could dent its ability to supply and sell motorcycles. Harley said last week it would shut majority of the production at its facilities in Pennsylvania and Wisconsin, starting March 18 through March 29, after an employee tested positive for the virus at its Wisconsin facility.
Centerra Gold Inc. is suspending open pit mining at its Oksut project in Turkey in an effort to slow the spread of COVID-19. The suspension of work at the project starting March 31 is for an initial period of two weeks.
Earnings include: Centerra Gold Inc.; Lululemon Athletica Inc.; Marathon Gold Corp.; Seabridge Gold Inc.
Also see: Thursday’s small-cap stocks to watch
Also see: Thursday’s analyst upgrades and downgrades
Economic news
Nearly 3.3 million Americans applied for unemployment benefits last week — more than quadruple the previous record set in 1982 — amid a widespread economic shutdown caused by the coronavirus. Filings for unemployment aid generally reflect the pace of layoffs.
(8:30 a.m. ET) U.S. real GDP for Q4. Consensus is a rise of 2.1 per cent from Q3.
With files from Reuters
Darcy Keith