Weekly Market Pulse - Week ending March 20, 2020

All views expressed are as of March 20, 2020

Chart of the week

Social distancing efforts showing up in economic activity

Social distancing efforts to slow the spread of COVID-19 intensified last week and the effect on economic activity is showing. China’s February economic data, a time when full quarantines were in effect, was ugly and revealed that retail sales fell 20.5%. Now, markets are trying to estimate what the data in the U.S. will look like. Bloomberg Economics estimates Q2 GDP will fall -9% quarter-over-quarter; however, real time information suggests GDP may be even worse. The chart below is data from OpenTable, an online restaurant reservation app, which shows reservations in major cities are down a staggering 100% year-over-year.

The state of the restaurant industry. March 25, 2020

Source: OpenTable, The state of the restaurant industry. March 25, 2020

Last Week’s Market Developments


Coronavirus fears continue to cause market volatility, with the number of global cases increasing to 258,778. Reported cases and deaths outside of China are accelerating and have exceeded the count within China. The S&P 500 continued its decline falling 14.98% while the S&P/TSX fell 13.59%.

Fixed Income:

Bond yields were mixed. The U.S. Treasury 10-year yield fell 11 basis points ending the week at 0.85%. In Canada, the Government of Canada 10-year yield rose 2 basis points ending the week at 0.87%.


Oil prices fell another 29.52% and copper dropped 11.87% as concerns of global growth rise amidst the coronavirus. The safe-haven asset gold fell a slight 2.07% selling off along with markets.

The state of the restaurant industry. March 25, 2020

As of March 20, 2020


Last Week’s Macro Developments

Central Banks – Emergency meetings and providing massive liquidity in face of coronavirus

The Federal Reserve cut rates 100 basis points to 0.25% at an emergency meeting on Sunday, citing weakened global financial conditions and disrupted U.S. economic activity. The Fed also pledged to buy at least $700b in assets. The central bank looks to be using all tools in its arsenal to keep credit flowing to support economic growth. Here are the measures the Fed is undertaking now:

  • Lowered primary credit rate by 150 basis points to 0.25% and lengthened loans to 90 days to encourage more active use of the discount window by depository institutions for funding
  • Reduced reserve requirements ratios for banks to 0%
  • Established a Commercial Paper Funding Facility to supply credit for liquidity and operational needs of companies
  • Established Primary Dealer Credit Facility to offer loans up to 90 days by collateralization
  • Created a Money Market Mutual Fund Liquidity Facility to support money market funds demands for redemptions by investors

The Bank of Canada broadened eligible collateral for its term repo facility to help maintain funding conditions for Canadian businesses. The central bank also introduced a Banker’s Acceptance Purchase Facility and announced a Standing Term Liquidity Facility in the days to come to provide additional liquidity.

Canada – $82B fiscal package announced; Borders closed to non-citizens; Flash CFIB Business Barometer shows weakness in Canadian economy; CPI rises

Prime Minister Justin Trudeau unveiled an $82b fiscal package to combat the coronavirus and falling oil prices. The package includes $27b in direct support and $55b in temporary tax deferrals to households and businesses.

Trudeau also announced that Canada would be closing its borders to non-citizens, with exceptions for arrivals from the U.S., Mexico and the Caribbean, immediate family members of Canadians, diplomats, and flight crews. The restriction was then expanded to include non-essential travel between Canada and the U.S. Trade and key supplies will continue to flow across the border, along with any essential workers.

The March flash reading for CFIB’s Business Barometer dropped to 49.8, from 60.5 in February, the lowest level since 2009. The sharp drop likely reflects changing economic conditions impacted by the increased spread of the coronavirus.

Canadian CPI in February rose 0.4% m/m. On a y/y basis CPI rose 2.2% with the largest contributors being transportation (+4.4%) and shelter (+2.3%).

US – Trump announces $1.2 trillion in spending to counteract coronavirus; Empire & Philadelphia Fed manufacturing surveys shows economic weakness

The Trump administration is discussing a fiscal package to buffer the economy from the effects of the virus. The package could include as much as $1.2 trillion in spending and includes direct payments to Americans, small business loans and stabilization funds.

Empire State Manufacturing conditions dropped to -21.5 in March from 12.9 in February. The 34-point fall was widespread but driven largely by a fall in new orders and shipments. Labor indicators were also weak, showing both the number of employees and average employee workweek declining. The 6-month business outlook dropped by a significant 21.7 points to 1.2, the lowest since 2009.

The Philadelphia Fed Manufacturing Business Outlook Survey had similar findings. The business activity index declined from a three-year high of 36.7 in February to -12.7 in March. Likewise, the widespread weakness showed huge declines in new orders and shipments and a weakening labor market.


Quick Look Ahead

Virtual G-7 Meeting (Tuesday March 24)

The G-7 Foreign Ministers Summit, originally scheduled for Pittsburgh through March 25, has been canceled due to the coronavirus threat. The ministers will have a video teleconference instead.

U.S. – Financial Stability Oversight Council (Monday March 23); U.S. Jobless Claims (Thursday March 26)

The Financial Stability Oversight Council, the powerful panel of regulators set up after the 2008 meltdown to spot emerging economic threats, meets to discuss the market impact of coronavirus.

The first official high frequency government release, which will show the knock-on effects on employment is initial claims. Last week we saw an increase of 70,000 for the week ended March 14, this Thursday consensus estimates a record-breaking number of 1.5 million initial claims.

Global - Flash PMIs for March

The flash PMI surveys for many countries (including the U.S., U.K., Japan and Germany) will provide an early read on the potential impact of the pandemic. Based off China’s PMI results consensus expects sharp drops, pointing to recession.

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