MARKET WATCH: March 6, 2020

However, hopes for a sustained recovery dwindled Tuesday as U.S. stocks fell sharply after an emergency interest-rate cut by the Fed failed to reassure markets. Although stocks initially moved higher after the 50-basis-point cut, U.S. markets soon turned volatile, with the Dow swinging nearly 1,400 points during the day’s trading. By Tuesday’s close, the Dow had lost 786 points, the Nasdaq fell 268 and the TSX declined 130 points. As investors fled riskier assets, they flocked to U.S. Treasurys, sending the yield on the 10-year note briefly below 1%.

N.A. markets reversed course once again on Wednesday over hopes for a coordinated global response to the virus and a strong Super Tuesday performance by former Vice President Joe Biden. Meanwhile in Canada, the BoC cut its key interest rate by 50 basis points Wednesday, lowering its target rate to 1.25%–the first cut of more than 25 basis points since 2009. By Wednesday’s close, all three U.S. markets were up significantly, with the Dow leading the way with a 4.5% gain of nearly 1,200 points and the TSX up more than 350. Despite equity gains, 10-year Treasury yields dropped to 0.994% by day’s end.

Markets again plunged Thursday as the outlook for corporate earnings and economic growth darkened as Washington state and California declared a state of emergency over Covid-19. All three U.S. markets notched declines of more than 3%, while the TSX shed 1.3%. Ten-year Treasurys again fell to new lows at 0.934%. With no immediate end to the virus in sight, analysts are expecting more volatility in the weeks, or perhaps months, to come.

N.A. Markets Regain Ground in Extremely Volatile Week

For the four days covered in this report, the Dow climbed 712 points to close at 26,121, the S&P 500 added 70 points to settle at 3,024, while the tech-heavy Nasdaq gained 171 points to close at 8,738. In Canada, the TSX was up 291 points to end at 16,554.

Equities

BoC contemplated a rate cut even before the COVID-19

Bank of Canada (BoC) Governor Stephen Poloz spoke yesterday at a Women in Capital Markets event in his first public comments since Wednesday’s statement only monetary policy decision. The Governor’s prepared remarks focused primarily on the strength and resilience of the Canadian labour market and consumer activity while noting the slowdown in business investment caused by global trade uncertainties. The unemployment rate was 5.6%in February, near historic lows. There are ~500,000 job vacancies in Canada and, according to the most recent Business Outlook Survey, hiring managers continue to cite finding quality candidates as their biggest challenge. Immigration will continue to play an essential role in filling vacancies in the coming years as more baby boomers exit the labour force.

The latter portion of Governor Poloz’s speech, and his media availability afterward, focused on the bank’s decision to cut its overnight rate by 50bps. In October and December, the Governing Council (GC) determined that downside risks to the Canadian economy were not yet outweighing concerns of further exacerbating financial vulnerabilities. Thus the Council opted to leave rates unchanged. The bank noted that slowing business investment, falling confidence, strikes, weather, and rail blockades had a meaningful impact on economic growth prospects. Governor Poloz offered that the GC likely would have lowered rates even before introducing the effects of the outbreak as a result. Looking ahead, the suite of communications laid the groundwork for downward revisions to 1Q, 2Q, and 2020 growth estimates in April’s Monetary Policy Report

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MARKET WATCH: March 6, 2020

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