Weekly Market Pulse - Week ending April 9, 2020

Market developments


Equity markets rebounded strongly in a short trading week as investors looked for signs of optimism that containment of COVID-19 will be successful. Cases in European countries continue to show signs of slowing, and New Jersey said they expected to reach the peak of the outbreak in two or three days. The Fed also announced another US$2.3T in loans to support financial markets. The S&P 500 jumped 12.10%. The S&P/TSX gained 9.49%.

Fixed income:

Bond yields increased as markets looked toward the potential restarting of economic activity. The U.S. Treasury 10-year yield rose 12 basis points, ending the week at 0.72%. The Government of Canada 10-year yield rose 5 basis points, ending the week at 0.76%.


Oil prices plunged even as OPEC+ was able to come to an agreement to slash production by 10M barrels per day. Gold prices surged 5.77% as jobless numbers remain elevated and the Fed pledged additional aid to financial markets. Copper prices rose 3.53% as investors continue to gauge the economic recovery in China after the Wuhan lockdown was lifted.

Performance (price return)

Performance - Price return

As of April 9, 2020

Macro developments

Canada – Demand had weakened prior to COVID-19 outbreak; Unemployment spikes due to virus countermeasures

The Bank of Canada Business Outlook Survey indicator fell below zero to -0.7, signaling that business sentiment had already softened prior to COVID-19. Overall business activity was negative reflecting slower growth across most regions, with energy firms in particular reporting high financial stress due to falling oil prices. Weak consumer demand pressed firms to scale down operations and reduce staff or hours. Capital spending intentions were also muted with firms generally citing a wait-and-see approach. Supply of inputs had also been disrupted, but survey responses indicate access to Chinese-sourced inputs was gradually resuming.

The economy lost over 1M jobs in March, and the unemployment rate increased by 2.2 percentage points to 7.8%, reflecting the unprecedented government interventions in response to COVID-19. The Labour Force Survey (LFS) reflects market conditions during the reference week of March 15 to 21 and the headline employment number only tells part of the story. The number of workers who did not work any hours during the reference week increased by 1.3M and those who worked less than half their usual hours increased by 800K. The total number of Canadians affected by jobless or reduced hours was 3.1M. The slowdown continued beyond the LFS reference week and is likely to be more reflected in April LFS data.

U.S. – Fed pledges additional US$2.3T in loans; Initial jobless claims continue at record rates

The Federal Open Market Committee (FOMC) minutes of the unscheduled March 15 meeting show all participants viewed near-term economic outlook as having sharply deteriorated due to COVID-19. The Fed reacted by implementing “forceful monetary policy response” and reiterated that their asset purchases are not QE, but rather to support smooth-functioning financial markets. The minutes show the committee is prepared to increase the size of asset purchases if required.

The Fed announced it would invest up to an additional $2.3T in loans to ease strains in the financial markets. The funds will aid small and mid-sized businesses and state and local governments as well as fund a broadened scope of asset purchases of eligible high-yield bonds and asset-backed securities.

Initial jobless claims on Thursday increased 6.6M for the week ended April 4. Consensus was expecting an increase of 5.5M. With this week's number the total initial claims over the last three weeks was 16.54M.

The April University of Michigan Consumer Sentiment Survey dropped the most in its history, falling 18.1 points to 71.0. The Current Conditions index fell 31.3 points from 103.7 to 72.4, while the Expectations index fell 9.7 points reflecting the toll the current lockdowns are having on respondent's employment and financial situations.

International – OPEC+ announces productions cuts; Bank of Korea keeps rates steady and increases QE

As of Thursday afternoon at the OPEC+ virtual meeting, members agreed to an outline of production cuts with OPEC+ members cutting 10M barrels per day and non-members removing an additional 5M. Saudi Arabia and Russia would cut 8.5M million barrels under the plan. Oil fell on the news as the cuts may not be enough to offset the demand loss from lockdowns.

Quick look ahead

Governments remain focused on the physical and economic battles against COVID-19. The news flow and events this week are highly fluid and change frequently. Expect the possibility of surprise announcements from central banks or governments.

Canada – Bank of Canada and existing home sales (April 15)

The Bank of Canada has its rate decision on Wednesday, and it will be Stephen Poloz’s last as Governor. The central bank will publish its quarterly Monetary Policy Report at the meeting. The BoC could announce adding corporate bonds to its asset purchases, but if there are only tweaks to the existing programs, the focus will be on the central bank’s forecasts. We also get data on existing home sales for the month of March, which will show the impact of the COVID shutdowns on the real estate market.

U.S. – Retail sales, industrial production and Fed Beige Book (April 15);
Initial jobless claims (April 16)

The U.S. releases retail sales and industrial production from March this week. Both measures allow a high frequency insight into the effect of lockdown measures in the U.S. Retails sales are expected to fall 7.0% month-over-month while industrial production is expected to drop 4.0% month-over-month. The Fed will also release its Beige Book, which gathers anecdotal information on current economic conditions in each Fed District through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources.

As explained last week, initial jobless claims on Thursday will be closely monitored because it is the highest frequency and most accurate measure we have of mounting job losses in the U.S. Initial claims should be monitored every Thursday throughout this crisis.

International – China trade data (April 14);
China Q1 GDP and China March economic activity (April 16)

This week we get a historic first quarter GDP number from China, which will highlight the extent of economic contraction from the COVID outbreak. The market consensus expects a drop of 6% year-over-year. China will release trade data showing the impact on its external sector as well as the March economic activity data. The March activity data will be closely monitored to see if the reduced quarantine measures have resulted in a pickup in retail sales, industrial production and fixed asset investment. This data is important to determine the shape of the economic recovery out of the shutdown.

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