By Scotia Wealth Management - The Zukiwsky Group

sponsored

MARKET WATCH – Mar. 20, 2020

Mar 20, 2020 | 4:00 PM

Big Picture

Market Sell-Off, Extreme Volatility Continue as Economies Grind to a Halt

Markets continue to experience steep declines and volatility, despite a series of measures taken by central banks. On Sunday evening the Fed sought to stabilize the U.S. economy by slashing its benchmark interest rate to near zero—the second emergency rate cut this month. The announcement sent stock futures and global stocks sliding, with many investors not convinced that central bank action could counter the coronavirus’s effects.

By Monday’s close, the Dow had lost nearly 3,000 points, while the S&P and Nasdaq shed roughly 12%. Meanwhile, the TSX tumbled to a four-year low, and the loonie weakened more than 1% as Brent crude fell to below $30 a barrel. The steep fall in stocks globally sent investors scrambling toward U.S. government bonds, driving down the yield on 10-year U.S. Treasurys to 0.722%, from 0.946% at Friday’s close.

Markets bounced back a bit on Tuesday after the Fed said it would buy short-term corporate debt directly from companies to help relieve credit markets. U.S. Treasury Secretary Steven Mnuchin also proposed a $1-trillion stimulus package that would include roughly $250 billion in direct payments to Americans. By Tuesday’s close, the Dow regained more than 1,000 points, while the TSX rose 325 points. The yield on the 10-year U.S. Treasury note climbed to 0.994%, from Monday. On Wednesday the Canadian government announced an $82-billion rescue package for businesses and households. Despite the massive stimulus proposals from both the U.S. and Canadian governments, N.A. markets once again plunged as panicked selling took hold.

Last seen Jan. 15

Missing: Courtney Cattleman, 17, of Maskwacis

2h ago

eyes up

Air Spray training around Red Deer Regional Airport

2h ago

Prevention, Access, Recovery, and Coordination

Safe Harbour officially hands over shelter keys, establishes accessible navigation hub

21h ago

Stocks, bonds and commodities fell Wednesday in a simultaneous sell-off as investors scrambled to raise cash. Trading was halted intraday Wednesday for the fourth time this month after the S&P 500 lost more than 7%, triggering a circuit breaker (TSX trading was also halted).

Investors even abandoned government bonds and gold, normally considered safe-haven assets, which rarely happens when stocks are also falling. The yield on 10-year Treasurys climbed to 1.26% as bond prices tumbled. Gold fell 3%, and silver dropped nearly 6%. However, the greenback was strong, highlighting the demand for safe cash. Meanwhile the loonie has been hard hit, at one point plummeting to nearly US68 cents, its lowest level since 2003.

By Wednesday’s close, the Dow had fallen more than 6%–slipping below 20,000 for the first time since early 2017–while the TSX lost 7.6%, as oil prices tumbled to the lowest level since 2002.

N.A. stocks on Thursday registered modest gains as central banks again stepped up measures to shield the global economy from the fallout of Covid-19. The latest moves from the Fed included efforts to stabilize U.S. money-market mutual funds and expand swap lines to meet the demand for U.S. dollars outside the U.S., while the Bank of England lowered its benchmark rate to near zero.

It was also a good day for oil as U.S. oil prices registered their largest one-day percentage gain on record, climbing 24% on Thursday to $25.22 a barrel, while Brent rose to near $28.50. Prices jumped after the U.S. Energy Department pledged to buy up to 30 million barrels for the Strategic Petroleum Reserve in a bid to help ease oversupply concerns. The recovery of oil was good news for the loonie, which steadied just below the US70-cent mark.

By Thursday’s close, the Dow climbed 188 points, the S&P added 11, the Nasdaq jumped 161, while the TSX surged 449 points, buoyed by the recovery in oil.

Punishing Week for N.A. Markets

For the four days covered in this report, the Dow plummeted 3,009 points to close at 20,087, the S&P 500 dropped 302 points to settle at 2,409, while the tech-heavy Nasdaq shed 724 points to close at 7,151. In Canada, the TSX surrendered 1,545 points to end at 12,171.

Strategy

Canada prepares $82bn in fiscal support, though a significant portion is ear-marked for tax deferrals

Canadian Prime Minister Justin Trudeau presented the outlines of a $82bn spending bill, roughly 3.5% of GDP, that is aimed at mitigating the impact of the COVID-19 outbreak on households and businesses. A third of the bill consists of tax deferrals, which will ease short-term liquidity constraints, but is unlikely to provide much in the way of direct stimulus. Households and businesses will still need to pay their tax bills by September 1st, knocking the package down to closer to 1% of GDP. Starting in April, the government has set aside $5bn for increased emergency support benefits for those who do not qualify for employment insurance (EI). The benefits will be available for 14 weeks at a “comparable” level to EI benefits. The government is also setting up an emergency wage subsidy for small businesses. Ten percent of wages will be covered for up to three months for qualifying businesses, up to $25,000 per employer. Further, commercial banks have committed to work with households to allow a deferral period of up to six-months on mortgage payments. Separately, Bank of Canada (BoC) Governor Stephen Poloz said yesterday that the bank would benefit from modeling the proposed fiscal policy and taking stock of actions already undertaken as he downplayed the possibility of another emergency rate cut ahead of the April 15th meeting. Recall, the bank has already lowered policy rates by a cumulative 100bps since the beginning of March, and set-up facilities to enable the transmission of monetary policy to the real economy and bolster liquidity conditions.

Disclaimer

This report is provided to you for informational purposes only and is not intended to provide personal investment advice. This report does not include or constitute an investment recommendation and does not take into account the particular investment objectives, financial conditions, or specific needs of individual clients. Any statements regarding future prospects may not be realized. Before acting on this material, you should consider whether it is suitable for your particular circumstances and talk to your investment advisor.

_{The author(s) of the report and the supervisors of the Global Portfolio Advisory Group may own securities of the companies included herein. Scotia Capital Inc. is what is referred to as an “integrated” investment firm since we provide a broad range of corporate finance, investment banking, institutional trading and retail client services and products. As a result we recognize that there are inherent conflicts of interest in our business since we often represent both sides to a transaction, namely the buyer and the seller. While we have policies and procedures in place to manage these conflicts, we also disclose certain conflicts to you so that you are aware of them. Please note that we may have, from time to time, relationships with the companies that are discussed in this report. The Global Portfolio Advisory Group prepared this report by analyzing information from various sources. Information obtained in the preparation of this report may have been obtained from the Equity Research and Fixed Income Research departments of the Global Banking and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments within Scotiabank. In addition to information obtained from members of the Scotiabank group, information may be obtained from the following third party sources: Standard & Poor’s, Morningstar, Bloomberg, Credit Suisse AG, Perimeter Markets Inc., and FactSet. The information and opinions contained in this report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the Global Portfolio Advisory Group, nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Nothing contained in this report is or should be relied upon as a promise or representation as to the future. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and analysis of information available at the time that this information was prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in this report will be realized. Opinions, estimates and projections contained herein are those of the Global Portfolio Advisory Group as of the date hereof and are subject to change without notice. For that reason, it cannot be guaranteed by The Bank of Nova Scotia or any of its subsidiaries, including Scotia Capital Inc. This report is not, and is not to be construed as: (i) an offer to sell or solicitation of an offer to buy securities and/or commodity futures contracts; (ii) an offer to transact business in any jurisdiction; or (iii) investment advice to any party. Products and services described herein are only available where they can be lawfully provided. Scotia Capital Inc. and its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. Trademarks are the property of their respective owners. Copyright 2019 Scotia Capital Inc. All rights reserved. This report is distributed by Scotia Capital Inc., a subsidiary of The Bank of Nova Scotia. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.}

_{® Registered trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management® consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. Private banking and International private banking services are provided in Canada by The Bank of Nova Scotia. Estate and trust services are provided by The Bank of Nova Scotia Trust Company. Portfolio management is provided by 1832 Asset Management L.P. and 1832 Asset Management U.S. Inc. Insurance services are provided by Scotia Wealth Management Insurance Services Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc. International investment advisory services are provided in Canada by Scotia Capital Inc. Financial planning services are provided by The Bank of Nova Scotia, 1832 Asset Management L.P., and ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Scotia Wealth Insurance Services Inc. is the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Insurance Agents (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. Scotia Wealth Management consists of a range of financial services provided, in The Bahamas, by Scotiabank (Bahamas) Limited and The Bank of Nova Scotia Trust Company (Bahamas) Limited. International private banking services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas. International investment advisory services are provided in The Bahamas by Scotiabank (Bahamas) Limited, an entity registered with The Securities Commission of The Bahamas. International wealth structuring solutions are provided in The Bahamas by The Bank of Nova Scotia Trust Company (Bahamas) Limited, an entity registered with The Central Bank of The Bahamas. Scotia Wealth Management consists of international investment advisory services provided, in Barbados, by The Bank of Nova Scotia, Barbados Branch, an entity licensed by the Barbados Financial Services Commission. Scotia Wealth Management consists of a range of financial services provided, in the Cayman Islands, by Scotiabank & Trust (Cayman) Ltd. International private banking services, international investment advisory services and international wealth structuring solutions are provided in the Cayman Islands by Scotiabank & Trust (Cayman) Ltd., an entity licensed by the Cayman Islands Monetary Authority. Scotia Wealth Management consists of international private banking services provided, in Peru, by Scotiabank Peru S.A.A, an entity supervised by the Peru Superintendence of Banking and Insurance.}