| CLOSING POINTS Year Bond Spreads

GLOBAL ECONOMICS | CLOSING POINTS

April 16, 2020 @ 18:15 EST

KEY POINTS:

BoC stimulus continued to buoy Canadian bonds Chinese Q1 GDP will inform the depth of the downturn... ...while higher frequency figures inform the transition to Q2... ...as early recoveries in less conventional readings plateau Trump to set guidelines for what he can't control: reopening the

economy BoC's Poloz, Wilkins repeat the same narrative Round-up of US, CDN releases Quiet N.A. session tomorrow; weekend position-covering a risk

CONTACTS

Derek Holt, VP & Head of Capital Markets Economics 416.863.7707 Scotiabank Economics derek.holt@

Evan Andrade, Research Analyst 416.862.3080 Scotiabank Economics evan.andrade@

TODAY'S NORTH AMERICAN MARKETS

Canada continued to revel in the aftermath of the BoC's actions as longer term GoC yields rallied and provincial bond spreads narrowed on the eve of the First Ministers meeting tonight. Broader market movements were relatively modest as US earnings and a wave of US and Canadian releases were digested. US President Trump is outlining plans to reopen the economy this evening, though his authority on the matter likely counts for less than the optics. The Chinese economy will be squarely in the sights of global markets overnight into what should be a relatively quiet North American session. As always on a Friday during a crisis period, there may be position covering into the weekend.

Equities rallied somewhat in the US by between ?% on the S&P to a gain of over 1 ?% in the Nasdaq composite. Toronto's exchange fare poorer with a loss of just under ?%. European cash markets closed mixed with a loss of over 1% in Spain to a gain of ?% in London.

Canada's sovereign debt curve continued to rally mostly through the belly into the long end where the 30 year bond yield fell 6bps and roughly matched the US long bond. EGBs were relatively little changed.

Oil prices were little changed with WTI slipping below US$20 per barrel and Brent running aat about US$28?. Gold was flat at US$1719/oz.

The USD came on a little stronger today against almost all crosses but with CAD holding its own. The euro was the weakest major cross and fell ?%.

BoC Governor Poloz and SDG Wilkins delivered their testimony before a parliamentary committee late in the day. The open statement (here) largely repeated similar messages to what was said yesterday, as did the broad tone of the questioning that is ongoing as this note is being sent. The decision to buy provincial bonds continue to drive spread narrowing across all provinces. Chart 1 plots all 10 provincial bond spreads over comparable maturity 10 year Canadas

Following the 1.01 million job losses reported in last week's March Labour Force Survey report (recap here), Canadian ADP payrolls reported a drop of 177.3k jobs. February payrolls were revised up heavily from 7.2k to a gain of 116.7k. The report leverages ADP payroll data to estimate monthly nonfarm employment on a seasonally adjusted basis. Losses were broad, with

Chart 1

All Provincial 10 Year Bond Spreads

2 spreads over 10yr GoC

1.8

BC

AB

1.6

SK

MB

1.4

ON

QC

1.2

NB

NS

1

NS

NL

0.8

0.6

0.4

0.2

0

Jan

Feb

Mar

Apr

Sources: Scotiabank Economics, Bloomberg.

Chart 2

China's Return to "Normalcy"

18 mn of

mn of 1

16

passengers 0.9

Car Travel, LHS 14

0.8

12

0.7

0.6

10

Air T ravel, RHS

0.5

8 0.4

6

Boat Travel, RHS

0.3

4

0.2

2

Rail Travel, LHS

0.1

0

0

Sources: Scotiabank Economics, Ministry of Transport of the People's Republic of China.

Visit our website at economics | Follow us on Twitter at @ScotiaEconomics | Contact us by email at scotia.economics@

1

Hundreds

GLOBAL ECONOMICS | CLOSING POINTS

April 16, 2020

management of companies and health care being the only two sectors seeing growth. The hardest hit sectors were trade, transportation & utilities, leisure & hospitality, and educational services. ADP's mismatch to the LFS household survey is likely a combination of greater volatility in household surveys and heavy inference of payroll figures that seek to proxy the lagging StatsCan payroll survey. That said, the EI claims are probably more accurate.

Canadian manufacturing shipments expanded by 0.5% m/m in February and 0.8% m/m in volume terms when stripping away price effects. This gain was assisted in part by a downward revision from -0.2% m/m to -0.7% m/m in January. However, sales were significantly hindered by the rail blockade and COVID-19. Stats Can estimated the combined impact led to a 0.8% reduction in manufacturing shipments for the month. The growth was modest in breadth, as shipments were up in 11 of the 21 sectors. By weighted contribution, the 0.5% gain was driven primarily by transportation equipment (0.7%). However, this release is of little importance as March's mandated non-essential manufacturing shutdowns led to 35 thousand job losses in the manufacturing sector.

The regional Federal Reserve manufacturing indices continue to illustrate the severity of the containment measures being undertaken. The Philadelphia Fed index fell from -12.7 points to -56.6 points in April--29.7 in ISM-adjusted terms. This is the lowest reading since July 1980 as the new orders, shipments, and average workweek components fell to their lowest points since records began in 1968. This miserable release joins the New York Empire State manufacturing index which fell 57 points to -78.2 in April.

US initial jobless claims totaled 5.245 million for the week ending on April 11th. This was only slightly below consensus (5.5 million) less than claims from the previous week that were revised up to 6.606 million. The reduced claims may have been caused by the holiday Friday delaying some applications in which case the current week is likely to see yet higher numbers. This brings the cumulative advanced initial claims to 22 million over a four-week period--or about 14% of all employed Americans at the end of February before the COVID-19 shock began to take its toll.

March US housing starts registered 1.216 million units annualized, down 22.3% m/m. This decline was somewhat larger than the -18.7% m/m consensus estimate and the largest single month drop since March of 1984. Single family starts fell 17.5% while multi-family starts fell 31.7%! This can be attributed to economic uncertainty slamming home buying demand and homebuilder's confidence in investing in additional projects. In terms of future starts, building permits fell 6.8% m/m to 1.353 million--less than the 10% decline that was expected.

OVERNIGHT MARKETS

The dominant overnight focus will be upon Chinese macroeconomic releases that will inform a) the depth of the shock to GDP growth in Q1 and b) the way the quarter ended and hence handed off to a possibly somewhat better economy in Q2.

Chinese Q1 GDP (10pmET) is expected to fall by about 6% y/y and 12% q/q non-annualized but seasonally adjusted. Chinese data is always marked by doubts over data quality, not least of which because of the rapid turnaround on Q1 growth that ended just a couple of weeks ago but also because the numbers are never revised even as more information becomes available. It's miraculously quick and perfect all the time! But higher frequency indicators are already pointing toward a gradual turnaround in the Chinese economy including, for example, passenger traffic by mode of transportation (chart 2). This is backed by other evidence such as metro transportation volumes, traffic congestion readings and real estate floor space sold. That said, the rebound from the extended Lunar New Year holiday appears to have roughly plateaued across these measures with the big question mark now over what crumbling export markets will do to the Chinese economy over Q2-onward.

This is where it becomes important to have figures for activity in March when the COVID-19 curve was stabilizing at least in order to be able to tell whether the worst rate of contraction is behind the Chinese economy. The levels for industrial production (consensus -6% y/y), retail sales (consensus -10% and fixed investment (-15% y/y) become important alongside the jobless rate. On the latter, even as the economy shutdown, we're asked to believe the unemployment rate only increased by 1% from late 2019 until February. More miracles.

TOMORROW'S NORTH AMERICAN MARKETS

There are no scheduled releases on tap in either the US or Canada. There should also be minimal earnings risk should be low with just seven S&P firms releasing in the pre-market and none of them are likely to be tone setters.

Visit our website at economics | Follow us on Twitter at @ScotiaEconomics | Contact us by email at scotia.economics@

2

GLOBAL ECONOMICS | CLOSING POINTS

April 16, 2020

Fixed Income

U.S. CANADA GERMANY JAPAN U.K.

CANADA GERMANY JAPAN U.K. Equities

S&P/TSX Dow 30 S&P 500 Nasdaq DAX FTSE Nikkei Hang Seng CAC Commodities WTI Crude Natural Gas Gold Silver CRB Index Currencies USDCAD EURUSD USDJPY AUDUSD GBPUSD USDCHF

Last 0.21 0.34 -0.68 -0.14 0.07

14 -88 -35 -14

2-YEAR 1-day 0.20 0.33 -0.69 -0.14 0.04

13 -89 -34 -16

Last 13899 23538 2800 8532 10302 5628 19290 24006 4350

19.98 1.71 1705.83 15.57 123.63

1.4041 1.0853 107.93 0.6352 1.2478 0.9694

1-wk

0.23 0.39 -0.62 -0.15 0.04

Last 0.36 0.44 -0.66 -0.10 0.16

17

8

-85 -101

-37 -46

-19 -20

Level

Level Level

Government Yield Curves (%):

5-YEAR

10-YEAR

30-YEAR

1-day 1-wk Last 1-day 1-wk Last 1-day 1-wk

0.34 0.41 0.63 0.63 0.72 1.22 1.27 1.35

0.44 0.59 0.61 0.64 0.76 1.26 1.32 1.33

-0.65 -0.56 -0.47 -0.47 -0.35 -0.08 -0.07 0.06

-0.10 -0.10 0.02 0.01 0.02 0.48 0.47 0.46 0.14 0.13 0.30 0.30 0.31 0.68 0.69 0.66

Spreads vs. U.S. (bps):

11

19

-1

1

4

4

5

-1

-99 -97 -110 -110 -107 -130 -134 -128

-44 -51 -61 -62 -70 -75 -80 -89

-20 -28 Change

-32 1 Day

-33 -42 -54

% change:

1-wk

1-mo

-58 -69 1-yr

-59.3

-0.4

-0.2

12.5

-15.8

33.3

0.1

0.4

16.6

-11.0

16.2

0.6

1.8

17.3

-3.7

139.2 21.8 30.8

1.7

5.5

23.6

6.7

0.2

-0.5

15.2

-15.2

0.5

-1.3

6.3

-24.7

-259.9

-1.3

-0.3

13.4

-13.4

-138.9

-0.6

-1.0

3.2

-20.3

-3.6

-0.1

-2.0

9.0

-21.8

% change:

0.11

0.6

-12.2

-25.9

-68.7

0.02

1.3

-1.4

-1.2

-32.1

-11.87

-0.7

0.5

11.6

33.9

0.06

0.4

3.4

-1.3

4.3

0.00

0.0

-4.3

-6.8

-34.0

-0.0041 0.0013 0.0100

% change:

-0.3

0.6

-1.1

5.2

0.1

-0.8

-1.3

-3.9

0.0

-0.5

0.2

-3.7

0.0025

0.4

0.0

5.9

-11.5

0.0021

0.2

0.2

3.5

-4.3

-0.0009

-0.1

0.3

0.8

-4.1

Central Banks Current Rate

Canada - BoC

0.25

US - Fed

0.25

England - BoE

0.10

Euro zone - ECB

0.00

Japan - BoJ

-0.10

Mexico - Banxico

6.50

Australia - RBA

0.25

New Zealand - RBNZ

0.25

Next Meeting Date

Canada - BoC

Jun 03, 2020

US - Fed

Apr 29, 2020

England - BoE

May 07, 2020

Euro zone - ECB

Apr 30, 2020

Japan - BoJ

Apr 28, 2020

Mexico - Banxico

May 14, 2020

Australia - RBA

May 05, 2020

New Zealand - RBNZ

May 12, 2020

Visit our website at economics | Follow us on Twitter at @ScotiaEconomics | Contact us by email at scotia.economics@

3

GLOBAL ECONOMICS | CLOSING POINTS

April 16, 2020

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein 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. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a "call to action" or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report. Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations. Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment. This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank. TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with "Global Banking and Markets", is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including, Scotiabanc Inc.; Citadel Hill Advisors L.L.C.; The Bank of Nova Scotia Trust Company of New York; Scotiabank Europe plc; Scotiabank (Ireland) Limited; Scotiabank Inverlat S.A., Instituci?n de Banca M?ltiple, Scotia Inverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V. ? all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorised by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorised by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities. Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.

Visit our website at economics | Follow us on Twitter at @ScotiaEconomics | Contact us by email at scotia.economics@

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download