Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Equities
Indexes on both sides of the border sank at the opening bell Wednesday after new figures made clear the dramatic impact on the Canadian and U.S. economies.
At 9:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX Composite index was down 304.6 points, or 2.14 per cent, at 13,953.83.
In the U.S., the Dow Jones Industrial Average fell 349.04 points, or 1.46 per cent, at the open to 23,600.72. The S&P 500 opened lower by 50.42 points, or 1.77 per cent, at 2,795.64, while the Nasdaq Composite dropped 159.78 points, or 1.88 per cent, to 8,355.96 at the opening bell.
Early Wednesday, the U.S. Commerce Department said U.S. retail sales fell 8.7 per cent last month, more than the already dire 8-per-cent decline markets had been expecting. Dow futures were down more than 500 points after the release of the figures.
In this country, Statistics Canada gave an early look at how badly the economy was doing in the face of the crisis. The agency said early estimates show GDP contracted 9 per cent in March. The agency said that’s the biggest one-month decline since the series began in 1961.
“As shocking as today’s figures are, we are in for worse as the impact of ‘full’ social distancing and other measures such as emergency declarations that shut down non-essential businesses earlier this month will only be evident in the data with the fullness of time,” TD Bank senior economist Brian DePratto said.
“Uncertainty around the timing for a (likely gradual) relaxation of pandemic response measures leaves a great deal of uncertainty around the outcomes, but it seems a safe bet that more records are going to be smashed when the second quarter figures are available.”
On Wednesday, U.S. investors where also weighing more bank results, with earnings coming in from Goldman Sachs, Bank of America and Citigroup. All three reported profit nearly halving in the most recent quarter as they set aside money to cover bad loans.
Also weighing on sentiment was an announcement late Tuesday that the U.S. would suspend funding to the WHO while it reviews the agency’s response to the COVID-19 pandemic. Mr. Trump said his administration would conduct a “thorough” probe of the WHO’s response, which could last as long as 90 days. The U.S. is the biggest single donor to the WHO, accounting for about 15 per cent of its budget.
In this country, the Bank of Canada delivers its next policy announcement at 10 a.m. ET. The central bank cut interest rates three times in March, including two unscheduled emergency cuts. Two weeks ago, the bank also launched a large-scale asset purchase program which sees the central bank purchase Canadian government bonds.
While no further move is expected on interest rates, some economists have suggested the bank may expand the bond purchase program to include provincial bonds. The announcement is the last for Governor Stephen Poloz before he retires from the post in June.
“Given the potential for further economic disruption, there is a decent chance that this policy may well get tweaked, if the bank decides to downgrade its economic forecasts,” Michael Hewson, chief market analyst with CMC Markets U.K., said.
In addition to the policy announcement, the Bank of Canada will also release its quarterly monetary policy report, offering what is likely to be a stark view of the economy in the immediate future.
Overseas, global economic concerns weighed on European stocks. Earlier this week, the International Monetary Fund forecast that the global economy would contract by 3 per cent this year, putting it on track for its worst showing since the Great Depression. The pan-European STOXX 600 was down 2.4 per cent by afternoon.
Britain’s FTSE 100 was down 2.67 per cent. Germany’s DAX lost 3.28 per cent. France’s CAC 40 fell 2.87 per cent.
In Asia, markets also posted a weak session. The Shanghai Composite Index ended down 0.57 per cent. Japan’s Nikkei lost 0.45 per cent. Hong Kong’s Hang Seng closed down 1.19 per cent.
Commodities
Crude prices sank in early going on fresh concerns that oversupply would more than offset efforts by OPEC and its allies to cut production and shore up the market.
The day range on Brent is US$27.96 to US$30.33. The range on West Texas Intermediate is US$19.20 to US$20.89.
Early Wednesday, the International Energy Agency said it expects a 29 million barrel a day drop in oil demand in April, leaving demand at its lowest level in more than two decades. It also suggested that no output cut could offset the near-term demand losses although "the past week’s achievements are a solid start.”
“The latest IEA headline is responsible for the latest leg lower, with the IEA saying global demand will fall 9 per cent this year - thwarting OPEC efforts to boost prices,” Stephen Innes, chief global market strategist with AxiCorp, said.
"However, the IEA also warns that oil storage capacity will run out by the middle of the year. "
The IEA report added to downward pressure seen late Tuesday when the American Petroleum Institute reported that U.S. weekly crude inventories rose by 13.1 million barrels, exceeding market forecasts. Official government figures are due later on Wednesday.
In other commodities, gold prices eased as investors took profits after the metal touched its best level in seven years earlier in the session.
Spot gold was down 0.7 per cent at US$1,715.02 per ounce. In the previous session, it jumped as much as 1.9 per cent to its highest since Nov. 2012 at US$1,746.50.
U.S. gold futures fell 1.1 per cent to US$1,748.60.
“Gold is consolidating gains at the top of its range … but there’s so much uncertainty in the world and so much of conflicting information that’s also supportive for gold,” said Jeffrey Halley, a senior market analyst at OANDA.
Currencies
The Canadian dollar fell as crude prices slid and markets await the morning policy announcement from the Bank of Canada.
The day range on the loonie is 71.33 US cents to 72.06 US cents, with the dollar near the low end of that spread at last check.
“The BoC may choose to do nothing more on the policy front at this point but, more likely, it could choose to fine tune existing programs or broaden asset purchases to more targeted sectors of the market (e.g., provincial bonds to better coordinate policy settings with the government),” Shaun Osborne, chief FX strategist for Scotiabank, said.
“A dovish outcome — more stimulus — might not have too much impact on the CAD, however, given the “alphabet soup” of programs the Fed is already running. No additional measures today might lift the CAD modestly but not to new cycle highs.”
On global markets, the U.S. dollar gained as concerns over the global economy bolstered the greenback’s appeal as a safe-haven holding.
In morning trading, the U.S. dollar was up 0.5 per cent at 99.40 against a basket of world currencies. The gains came after four days of declines.
The U.S. dollar rose about 0.5 per cent against the euro and Swiss franc, and edged up 0.2 per cent against the Japanese yen, according to Reuters.
Company news
Fairfax Financial Holdings Ltd. is warning that it expects to lose US$1.4-billion in the first quarter because of the COVID-19 pandemic, The Canadian Press reports. The Toronto-based holding company says its preliminary result will also mean about a 12 per cent decrease in book value adjusted for the $10 per common share dividend paid in quarter. Chief executive Prem Watsa says that despite the unprecedented turbulence its insurance companies continued to have strong underwriting performance in the quarter.
Vermilion Energy Inc. says it will suspend its monthly dividend. The company says it made the decision as a result of the deterioration of commodity prices in the wake of the COVID-19 pandemic.
Following the release of our revised 2020 capital budget and announced dividend reduction, we have witnessed further deterioration in near-term commodity prices as a result of the COVID-19 pandemic and resulting oil demand destruction.
Goldman Sachs Group Inc reported a 49-per-cent fall in quarterly profit on Wednesday, as the bank put aside nearly US$1-billion to meet future loan defaults and booked heavy losses on its debt and equity investments. The bank’s net earnings applicable to common shareholders fell to US$1.12-billion in the quarter ended March 31 from US$2.18-billion a year ago. Earnings per share fell to US$3.11 from US$5.71 a year earlier.
Citigroup Inc reported a 46-per-cent plunge in quarterly profit as the bank set aside nearly US$5-billion to prepare for an expected flood of defaults on loans due to a virtual halt in economic activity caused by the coronavirus pandemic. The lender, the most global of the U.S. banks, said net income fell to US$2.52-billion, or US$1.05 per share, in the first quarter ended March 31, from US$4.71-billion, or US$1.87 per share, a year earlier.
Earnings per share were also boosted by a 10% reduction in shares outstanding.
Bank of America Corp recorded a 48.5-per-cent fall in quarterly profit as the bank set aside US$3.6-billion for potential loan losses tied to the coronavirus pandemic. Net income applicable to common shareholders rose to US$3.54-billion, or 40 US cents per share, in the first quarter ended March 31 from US$6.87-billion, or 70 US cents per share, a year earlier.
Cannabis company Aphria Inc. said it is suspending its previously announced 2020 revenue and adjusted earnings guidance. The announcement came as Aphria reported third-quarter revenue of $144.4-million and quarterly earnings per share of 2 cents. Aphria’s U.S.-listed shares were up more than 6 per cent in premarket trading.
Amazon said it planned to appeal a French court ruling limiting deliveries to essential goods in order allow for a deeper assessment of coronavirus risks at its sites in the country. “We’re puzzled by the court ruling given the hard evidence brought forward regarding security measures put in place to protect our employees,” the U.S. online retailing giant said in a statement.
Shaw Communications Inc. is temporarily laying off about 10 per cent of its workforce, primarily in retail and sales roles, because of the shutdowns stemming from the COVID-19 pandemic. Fewer than 1,000 people will be affected by the layoffs, Chethan Lakshman, Shaw’s vice-president of external affairs, said in a statement. Shaw employs roughly 10,000 people, according to its 2019 annual report.
Economic news
(8:30 a.m. ET) U.S. retail sales for March.
(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for April.
(9 a.m. ET) Canadian existing home sales for March.
(9 a.m. ET) Canada's MLS Home Price Index for March.
(9:15 a.m. ET) U.S. industrial production and capacity utilization for March.
(10 a.m. ET) Bank of Canada rate decision and Monetary Policy Report.
(2 p.m. ET) U.S. beige book
With Reuters and The Canadian Press
Terry Weber