Global equity benchmarks moved higher on Thursday following signs of some success by governments and central banks which have taken additional steps to bolster their economies during the COVID-19 pandemic, while oil prices pulled back from an earlier surge.
Canada’s main stock index rose on Thursday as the U.S. Federal Reserve’s massive program to shore up the world’s largest economy overshadowed record domestic job losses in March.
Canada lost a 1 million jobs in March, while the unemployment rate soared to 7.8%, official data showed, as the new coronavirus outbreak forced the closure of non-essential businesses.
However, bolstering investor sentiment was a broad, $2.3 trillion effort by the U.S. Federal Reserve to bolster local governments and small and mid-sized businesses in its latest move to keep the U.S. economy intact.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 240.92 points, or 1.73%, at 14,166.63.
Eight of the 11 major TSX sectors were higher, with materials leading gains with a 6.9% rise.
The sector, which mostly comprises of precious metal miners, was helped by a surge in prices, which jumped to their highest in a month on Thursday.
Energy stocks reversed course in afternoon trading and slid 2%.
Oil prices slumped on Thursday, giving back an earlier 10% surge as investors doubted the emerging supply-cut agreement between members of OPEC and its allies would adequately address the global fuel demand collapse caused by the coronavirus pandemic.
Oil producers led by Saudi Arabia and Russia were hammering out an agreement to address growing oversupply amid a 30% drop in worldwide fuel demand. The pandemic has crushed global demand, and even a cut of 10 million barrels per day or more would leave millions of barrels stranded, pressuring prices further.
“The collapse in oil prices is a result of the reality that while OPEC is cutting as expected, there is simply too much crude in the physical space for sale, with too few pipelines to move it and too few buyers to take it,” said Scott Shelton, energy specialist at United ICAP.
The Organization of Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, had considered curbs as great as 15 million to 20 million barrels per day (bpd), or 15% to 20% of global supplies.
However, Iran’s oil minister said a production cut of 10 million bpd is just for May and June 2020. From July until the end of 2020 those cuts would fall to 8 million bpd, and then next year to 6 million bpd.
“A lot of hope got priced into this market over the past several days,” said John Kilduff, partner at hedge fund Again Capital LLC.
Brent futures fell $1.36, or 4.1%, to settle at $31.48 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $2.33, or 9.3%, to settle at $22.76. That was the lowest settlement price for both contracts in a week.
A cut of 10 million bpd would be the biggest output cut ever agreed by OPEC, but Russia has insisted it will only reduce output if the United States joins the deal.
“A 10 million bpd deal is far lower than what the market needs at the moment,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy noting “now hopes can only rely on what other countries outside the alliance will do.”
Wall Street ended the trading week on a high note on Thursday as the U.S. Federal Reserve unleashed its latest program designed to buoy local governments and businesses crushed by moves to stem the coronavirus outbreak.
The Dow Jones Industrial Average rose 281.48 points, or 1.2%, to 23,715.05, the S&P 500 gained 39.49 points, or 1.44%, to 2,789.47 and the Nasdaq Composite added 62.67 points, or 0.77%, to 8,153.58
The central bank announced programs to provide up to $2.3 trillion in loans to households, local governments and small and large businesses as the country tips into what economists say may be the worst recession in decades. It’s the latest massive move by the Fed, which has rushed to ensure cash gets to parts of the economy that need it after markets got snarled by a rush of investors pulling cash out of the system.
In the last few weeks, though, investors have sent the market back up more than 20% following the massive aid promised by the Fed, other central banks and governments around the world, even as evidence piles up that the recession fears were prescient. This week, some investors have also begun to look ahead to the possibility that the economy could reopen amid signs the outbreak may be peaking or plateauing in several of the world’s hardest hit areas.
”The market is solely focused on the number of cases,” said Quincy Krosby, chief market strategist at Prudential Financial. “The question is when can the restrictions be lifted? That’s what the market is focused on, when does America open up for business again?”
Many professional investors have been skeptical of the rally, saying there is still too much uncertainty. They say predictions for a relatively quick economic rebound following a steep recession are overly optimistic. While hopes are building that a plateau may be arriving for infections in several hotspots, it’s not assured. In the meantime, businesses continue to shut down and one in 10 U.S. workers has lost their jobs in the last three weeks.
”You typically have very strong rebounds, even in a bear market,” Krosby said of markets where stocks have fallen more than 20%. “The question is whether or not we see selling into this rebound, or can we continue to build on it.”
The Fed’s immense programs announced Thursday touch far-reaching corners of lending markets, and if they continue for the long term, they could encourage investors to take on too much risk and lead to market bubbles.
But in the short term, “what the Fed is doing is great and helping markets function and providing liquidity so investors can do what they need (and) want to do,” said Warren Pierson, deputy chief investment officer at Baird Advisors.
The programs even include bonds for companies that have weak enough credit ratings to be called “junk,” or speculative grade.
Worries have been high about the ballooning amount of corporate debt that’s concentrated at the bottom edge of high-quality “investment grade.” The looming recession could push a lot of that into “junk” status, which would force many investors to sell it because they’re required to hold only investment-grade bonds. A run from such bonds could trigger sell-offs in other areas of the market and lead to even more pain across the economy.
The Fed’s new programs include some support for bonds that were at the bottom edge of investment grade, as of March 22, but subsequently downgraded to the top tier of junk. Exchange-traded funds tracking the junk bond market were up nearly 6%.
Also in the Fed’s programs are municipal bonds, which allow cities and state governments to raise cash. On a normal day, trading in the market might see 15 buyers make a bid for a particular bond. But as recently as a few weeks ago, there were 15 sellers for every buyer, according to Gabe Diederich, portfolio manager at Wells Fargo Asset Management. All the difficulty in selling caused prices to tumble more than they otherwise should, even for high-quality bonds. That makes it more difficult for local governments to borrow.
Stock markets around the world also rose. German’s DAX returned 2.2%, France’s CAC 40 added 1.4% and the FTSE 100 rose 2.9%. Japan’s Nikkei 225 was virtually flat, while South Korea’s Kospi rose 1.6% and the Hang Seng in Hong Kong climbed 1.4%
Reuters and The Associated Press
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