4:05 p.m. U.S. stocks staged a furious rally in the final hour of trading Friday that cut in half a rout that reached 4 per cent and left the S&P 500 higher after a tumultuous week dominated by fear the spreading coronavirus will upend global growth. Treasuries surged.
The S&P 500 slid 1.7 per cent Friday and ended the week up 0.6 per cent. Indexes were whipsawed over the past five days as the spreading virus shook investor confidence and spurred action from central banks and governments.
Treasuries fell to all-time lows, with the 10-year yield dropping as far as 0.66 per cent. The dollar slid for the sixth time in seven days. West Texas crude plunged 10 per cent, the biggest drop in more than five years.
S&P/TSX — 16,045.50 -508.49(-3.07%)
S&P 500 2,918.20 -105.74(-3.50%)
DOW 25,373.71 -747.57(-2.86%)
WTI US$41.31 -10%
2:18 p.m. Canada can take multiple fiscal steps to address the coronavirus outbreak, according to CIBC chief economist Avery Shenfeld, and none of them involve altering the budget.
In a note published on Friday, Shenfeld looked “outside of the budget box” for solutions after finance minister Bill Morneau warned that it wouldn’t be the “necessary place for us to deal with (the coronavirus).”
To begin, Canada should allow stabilizers such as employment insurance payments or the “tax cuts” that will be caused by some households moving into lower brackets to provide relief. These will only work, however, if Canada avoids the temptation of offsetting them with spending cuts or by raising taxes, he said.
Both provincial and federal governments will have to support individual workers and businesses that are negatively impacted by the virus. The federal government might also consider a one-time rise in health transfer to provinces, Shenfeld wrote, as they cope with potentially overflowing hospitals.
In the worst case, the federal government could also look into using a mid-year statement to directly add stimulus into the economy.
“The last time that was tried, a direct payment to low and middle income families showed up quite quickly in spending,” Shenfeld said. “Those still out and about, and not confined to quarters, will still have some shopping to do.”
— Victor Ferreira
1:32 p.m. Worries about a drop in air travel over the coronavirus travelled further down the chain Friday to hit the stocks of Canadian companies that build planes and flight simulators.
A material drop in demand for air travel could hurt Canadian aerospace companies that build planes, parts and flight simulators, including Bombardier Inc. and CAE Inc., according to National Bank of Canada research.
It’s too early to calculate the full impact on the aerospace sector, but preliminary evidence indicates it could be worse than previous air travel slowdowns after 9/11, the 2003 SARS crisis and the global recession of 2008, National Bank analyst Cameron Doerksen noted to clients.
“Our biggest concern for the broader aerospace industry is that even a temporary decline in air travel demand could ultimately lead to lower demand for new aircraft and production rate decreases,” Doerksen wrote.
Bombardier fell 3.74 per cent around mid-day on the Toronto Stock Exchange to $1.03, while CAE Inc. was down just under one per cent to $33.16 per share.
Air travel volumes in China fell about 80 per cent in January and February, according to China’s Ministry of Transport, with airlines around the world suspending flights to China and cutting capacity elsewhere as the virus spreads.
CAE’s stock had been riding high before coronavirus because it makes simulators for the Boeing 737 Max fleet, a product expected to be in high demand as airlines seek further training after the aircraft was grounded globally. But it could face a drop in demand for its training services if airlines park planes and stop hiring new pilots, Doerksen noted.
COVID-19 is less threatening to Bombardier, given it sells business jets that could be used as a substitute for cancelled commercial flights, Doerkson wrote. But demand for business jets could suffer if the virus leads to a broad economic slowdown, he added, noting that business aircraft activity dropped 20 per cent in the U.S. following the global financial crisis.
— Emily Jackson
• • •
12:37 p.m. Major stock indices in North America were down as of around midday Friday, as concerns about the impact of the coronavirus continued to weigh on the minds of investors.
In Toronto, the S&P/TSX Composite Index was down more than 2.6 per cent. In the U.S., meanwhile, the Dow Jones Industrial Average was down around 2.5 per cent, and the S&P 500 and the Nasdaq Composite had fallen around three per cent.
The energy sector was hit particularly hard, driven lower as OPEC+ talks in Vienna failed to deliver an agreement to cut oil production. Oil and gas prices have taken a hit from the coronavirus outbreak, which has weighed on demand for energy and helped to push contracts for the Brent and WTI oil benchmarks below US$50 apiece.
Still, some retailers have been seeing their stock trade higher during the outbreak, as consumers stock up. In Canada, shares of grocers Loblaw Companies Ltd. and Metro Inc. were up on Friday by around one per cent and 1.5 per cent, to around $72.61 and $57.20, respectively.
The yield on the Government of Canada’s five-year bond ticked up slightly during Friday morning trading, but still sat below 0.7 per cent, well down from 1.68 per cent the benchmark sat at as of the end of 2019.
• • •
11:33 a.m. Oil prices were bludgeoned on Friday, sinking into a deeper bear market after Reuters reported that a proposed OPEC cut was in jeopardy due to opposition from Russia.
Western Canada Select fell another seven per cent by mid-morning to trade at a low of US$29.52, its lowest mark since December 2018 when historically wide oil spreads prompted the Alberta government to enforce an output cut.
Since reaching its 2020 high of $41.35 in January, the Canadian benchmark is now down more than 28 per cent. The U.S.’ West Texas Intermediate has faced even deeper losses, shedding 35 per cent since early January.
Canadian oil prices are still more than $10 away from retesting those lows, but OPEC’s struggles to deal with the damage caused by the coronavirus outbreak. In China, the epicenter of the outbreak, OPEC has lost significant business from the world’s largest oil importer as demand for fuel has plunged by more than 20 per cent — or three million barrels per day — this year.
Under pressure, OPEC has been looking to implement an output cut of 1.5 million barrels per day until the end of 2020. That would be on top of an already enforced cut of 2.1 million barrels per day that is set to remain in effect until March.
The cut, according to Reuters, was dependent on Russia’s approval and it now appears as if OPEC will not receive the green light from Moscow. Russia, according to Reuters, will only agree to extend the timelines associated with the output cuts that are currently in place.
— Victor Ferreira
• • •
11:17 a.m. : Barrick Gold Corp. says it is stocking up on “key commodities” amid the outbreak of the new coronavirus.
The Toronto-headquartered mining company said in a press release Friday that, based on its experiences fighting Ebola outbreaks in Africa, it has “increased its site-specific emergency response plans as well as regional crisis management plans to deal with any manifestation of COVID-19 in or near its mines globally.”
Barrick said it had spoken with employees about the symptoms of the virus and its infection risks. Access to mining sites are “strictly controlled,” with visitors, employees and contractors routinely screened before and on arrival, the company noted.
“Supplies to its mines have not been affected but the company is increasing its inventory of key commodities to above their normal level,” Barrick’s press release added. “Placed and forecast orders are intact.”
Barrick says it has gold and copper mines and projects in 15 countries across North America, South America and Africa. It also has operations in Papua New Guinea and Saudi Arabia.
Although the company says it has not yet determined if travel restrictions are required, it is closely watching the situation and has set up “emergency medical procedures and facilities” across its business.
— Geoff Zochodne
• • •
10:30 a.m. The new coronavirus has prompted Tim Hortons to stop accepting reusable cups, as well as to delay plans to hand out 1.8 million of the cups as part of its Roll Up the Rim contest.
Tims said Friday morning in a press release that while health officials have not recommended changes to procedures, and that experts continue to say there is “low risk” in Canada, “we are going to pause on accepting reusable cups at this time.”
The company says it will do so following talks with restaurant owners and comments from customers.
“We are continuing to reinforce proper health and sanitization procedures at restaurants and our supply chain is sourcing extra gloves, hand sanitization gel and other essential cleaning materials should we need them in the coming months,” the coffee-shop chain said.
— Geoff Zochodne
• • •
10 a.m. An already painful market selloff deepened Friday as the S&P/TSX Composite Index entered correction territory amid investor fears over the coronavirus outbreak.
The Canadian benchmark index opened more than 300 points down and continued to add to its losses less than an hour into trading session. Since reaching an all-time high of 17,970 points on Feb. 20, the index has now lost more than 10 per cent.
The U.S. markets didn’t fare any better as the Dow Jones Industrial Average shed another 664 points at market open on Friday, building on the near 1,000-point loss it registered on Thursday. The S&P 500, meanwhile, opened more than 69 points down on Friday, good for a loss of 2.3 per cent, after dropping more than 100 points one day prior.
With Friday’s losses in tow, the Dow and S&P 500 have each quickly dropped more than 13 per cent since reaching their all-time highs in mid-February.
Investors remain jittery as the coronavirus outbreak has now lead to more than 100,000 cases worldwide, including 3,408 deaths. Attempts to quell to the virus’ impact on the economy through a 50-basis point emergency interest rate cut by the U.S. Federal Reserve have not been met with positive reaction by Wall Street. Even a positive U.S. jobs report, which was published on Friday and showed that more than 273,000 jobs were added in February, was ignored by investors who fear those numbers may change radically in the upcoming months.
— Victor Ferreira
With file from Bloomberg