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Equities
Major indexes in Canada and the U.S. opened down Tuesday as concern over the spread of the coronavirus in China pushed investors away from riskier assets and raised the spectre of the economic damage done by the SARS virus.
At 09:32 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 45.91 points, or 0.26 per cent, at 17,551.48.
The Dow Jones Industrial Average fell 79.05 points, or 0.27 per cent, at the open to 29,269.05.
The S&P 500 opened lower by 8.59 points, or 0.26 per cent, at 3,321.03. The Nasdaq Composite dropped 27.88 points, or 0.30 per cent, to 9,361.07 at the opening bell.
Authorities in China confirmed that a new virus could be spread through human contact, reporting 15 medical staff had been infected and a fourth person had died. The headlines pushed global stocks lower with MSCI’s all-country index falling 0.4 per cent and Asian indexes falling sharply overnight. Safer holdings like bonds and the Japanese yen advanced.
“Asian weakness was led primarily by the spread of the coronavirus in China, which comes on top of a downgrade of global growth forecasts from the International Monetary Fund, and Moody’s cut the credit rating of Hong Kong,” AxiTrader strategist Stephen Innes said.
“The coronavirus outbreak can cause a massive demand shock, particularly to the consumption of services, especially travel. So, traders are hedging the tail risk,” he said.
Still, Mr. Innes also said, barring further outbreaks, the economic impact could be relatively short-lived.
“Having this outbreak occur in an environment of an already subdued global economy due to the U.S.-China trade war, investor’s sentiment and reactions are perhaps getting magnified when being viewed through the trade war lens,” he said. “And I would caution that generally, the market and especially the U.S. have looked through these types of events in the past.”
On the corporate side, tech earnings kick off Tuesday with International Business Machines posting its latest results after the close. Analysts are expecting IBM to report adjusted earnings per share in the latest quarter of US$4.69 on revenue of US$21.6-billion. IBM shares were higher at the opening bell in New York.
On Bay Street, investors got a weaker-than-forecast reading on factory sales in November. Statistics Canada said sales fell 0.6 per cent for the month to $57-billion. It was the third consecutive monthly decrease. The market had been expecting a decline of 0.5 per cent.
On the corporate side, Spin Master Corp. stock fell 15 per cent shortly after the start of trading in Toronto after the company said it expects gross product sales for 2019 to fall 1 per cent from a year earlier. Excluding the impact of foreign exchange, it expects sales to be flat. The company’s previous guidance, issued in November, had forecast growth in the low single digits. “Our overall performance in the fourth quarter and for 2019 as a whole, was disappointing relative to our outlook in early November," Ronnen Harary, Spin Master’s Co-Chief Executive Officer, said in a statement.
Overseas, major European markets were in the red in afternoon trading. The pan-European STOXX 600 pared early losses to trade down 0.39 per cent. Britain’s FTSE 100 fell 0.89 per cent. Germany’s DAX slid 0.06 per cent. France’s CAC 40 fell 0.74 per cent.
In Asia, Hong Kong’s Hang Seng sank 2,81 per cent after Moody’s cut its credit rating on Monday. The Shanghai Composite Index lost 1.41 per cent. Japan’s Nikkei ended down 0.91 per cent.
Commodities
Crude prices fell more than 1 per cent in early going as investors expected oil production in Libya to resume after a force majeure was declared following a military blockade cut off key oil fields.
The day range on Brent is US$64.28 to US$65.35. The range on West Texas Intermediate is US$57.80 to US$59.73.
Two main oilfields in southwest Libya started shutting down on Sunday after a pipeline was closed off, potentially reducing national output to a fraction of its normal level, the country’s National Oil Corp (NOC) said. A document sent to oil traders and seen by Reuters on Monday said the NOC had declared force majeure - a waiver on contractual obligations - on crude loadings from El Sharara and El Feel oilfields in Libya’s southwest.
“Oil traders were quick to sidestep the middle east supply disruption and refocus on the bearish oversupplied market conditions after the IEA just last week projected a ‘solid base’ of oil inventories,” AxiTrader’s Stephen Innes said. “At the same time, the deluge of U.S. shale oil production would help offset any unplanned oil supply outages.”
On the inventory side, the American Petroleum Institute’s weekly report on U.S. crude stocks will be delayed a day due to Monday’s market holiday in the United States. That report is now due on Wednesday. The U.S. Energy Information Administration’s weekly inventory tally will follow a day later.
“In the absence of any significant U.S. macro data release, the inventory reports could set the pace of play and have an outsized impact on oil markets this week , given the market focus on supply,” Mr. Innes said.
Gold prices, meanwhile, hit a two-week high as investors shied away from risk on news of the spread of the coronavirus in China.
Spot gold prices touched their highest since Jan. 8 at US$1,568.35 and were up 0.1 per cent to US$1,563.01 per ounce. U.S. gold futures were 0.3 per cent higher at US$1,564.10.
Gold prices were driven by “the rapid spread of the virus from Wuhan, China, which has caused panic,” Margaret Yang Yan, a market analyst at CMC Markets, told Reuters.
“Chinese New Year holidays are going to worsen the situation as people are bound to travel in China. The fear of outbreak is going to drive up demand for gold for a couple more days,” she added.
Currencies
The Canadian dollar was down slightly as markets turned away from riskier holdings on headlines about the spread of the new virus in China.
The day range on the loonie so far is 76.47 US cents to 76.66 US cents.
“The Canadian dollar is under-performing, alongside the Australian dollar and the New Zealand dollar, as global stocks slump,” Shaun Osborne, chief FX strategist for Scotiabank, said.
“A further deterioration in the latest coronavirus scare is liable to weigh somewhat more on CAD sentiment as investor hark back to the SARS outbreak a decade ago but we have to think that the early identification of the latest outbreak suggests that health professionals are better prepared this time.”
For the loonie, the day’s main economic report is Statscan’s tally of November manufacturing sales.
The government agency said sales fell 0.6 per cent for the month, more than the 0.5-per-cent decline markets had been expecting. Sales were down in 11 of 21 industry groups. The Canadian dollar held near the middle of the day range immediately after the report’s release.
CIBC economist Royce Mendes said some of the November weakness was offset by a revision to October’s numbers. The October decline was revised to 0.2 per cent from earlier reports of a 0.7-per-cent fall.
“The numbers for November would have looked even worse were it not for a rebound in the auto sector following the strike south of the border in the prior month,” he said. “Motor vehicle parts were up almost 9 per cent in November.”
The numbers come a day before the Bank of Canada’s rate announcement. Markets aren’t expecting the central bank to raise borrowing costs. The bank will also release its quarterly monetary policy report, offering a look at how it sees the Canadian economy holding up.
On broader currency markets, China’s yuan fell on concern over the spread of the new virus. The yuan dropped almost 0.7 per cent in offshore trading to 6.9126 per U.S. dollar, off six-month highs hit on Monday. Onshore, the yuan hit its lowest in over a week at 6.9094.
Safe-haven currencies, meanwhile, strengthened. Japan’s yen rose 0.2 per cent to 109.97 per U.S. dollar. The Swiss franc was also firmer.
The U.S. dollar index, which measures the greenback against a group of six currencies, was steady at 97.602.
More company news
Walt Disney Company said it had moved up the launch of its video streaming service, Disney+, to March 24 in the United Kingdom and regions across Western Europe by a week, ahead of its earlier launch schedule of March 31. Disney+ would be available in the U.K. and Ireland for 5.99 pounds (US$7.81) per month or 59.99 pounds every year, and in France, Germany, Italy, Spain, Switzerland and Austria for 6.99 euros (US$7.76) per month or 69.99 euros annually.
Halliburton Co swung to a loss in the fourth-quarter as it took a charge of US$2.2-billion on its fracking business due to falling demand from oil and gas producers in North America, its largest market. The company on Tuesday reported a net loss attributable to it of US$1.7-billion, or US$1.88 per share, compared with a profit of US$664-million, or 76 US cents per share, a year earlier.
Boeing plans to carry out the first test flight of its delayed 777X airplane later this week, two people familiar with the matter told Reuters on Tuesday. A source close to one of the wide-body jet’s nine firm customers said the flight would take place on Thursday or Friday at Boeing’s commercial base outside Seattle, depending on weather.
Facebook plans to hire 1,000 more staff in Britain, mainly for its technology and harmful content teams, The Associated Press reports. The U.S. tech company said Tuesday that it will add the new roles by the end of the year, bringing its U.K. workforce to more than 4,000. More than half of the new jobs will be in technology-focused roles such as software engineering.
Economic news
Canadian manufacturing sales fell 0.6 per cent in November to $57-billion. Economists had been forecasting a decline of 0.5 per cent.
With Reuters and The Canadian Press
Terry Weber