Global Equity Weekly

March 13, 2020 | 17:03

Global Economy on Time-Out

Economist

Economist
Economics

Carl Campus joined BMO Economics in 2007 as a Research and Technical Assistant; he was later promoted to his cur... (Read more)

Carl Campus

Economist
Economics

Carl Campus joined BMO Economics in 2007 as a Research and Technical Assistant; he was later promoted to his cur... (Read more)

While the week ended with some relief in the form of stepped up broad-based policy measures, COVID-19 fears gripped equities in a week of historic market swings around the globe. S&P 500 investors were stuck on the stock market equivalent of a carnival tilt-a-whirl, finishing the week down a chunky 8.8%, after nauseating swings between -9.5% and +4.9%—further reflected in the wild upswing in the CBOE’s volatility index (VIX) which peaked at above 77 early Friday after averaging 15 in the 12 months to mid-February.

Recall, just two short weeks ago, the S&P 500 had notched its largest daily point decline on record. Well, in just the past week, the index has had three (yes, three!) larger drops, with two of said declines ranking in the top 10 of all-time in percentage terms (Thursday’s drop came in at #2, while Monday’s decline took the #8 slot). Of course, Friday’s monster late-session rally marked the largest point increase of all time (3^rd in percentage terms), while Tuesday’s rally came in as the 3^rd largest increase (21^st in percentage terms). Wild times indeed. While all sectors were in the red, technology and health care fared slightly better, while energy unsurprisingly saw the biggest declines.

Table 1 - Market Performance

Source: BMO Economics, Bloomberg

In Canada, Friday’s rally wasn’t enough to save the TSX from a large weekly loss in the order of 15.3% as the OPEC/Russia price war slashed oil prices, while high-profile virus cases (most notably PM Trudeau’s wife) and the announcement of widespread school closures helped send demand for stocks and groceries in complete opposite directions. Consumer staples outperformed while energy lagged.While the week was punctuated by Thursday’s decline, which was the steepest in both absolute and percentage terms in over 40 years of records, officials marched out a series of stimulative measures on Friday (which included lower policy rates and a $10bln credit facility) to support the economy. Minister of Finance Bill Morneau also pulled out his former-ECB chief Draghi impression, with a “we will do whatever it takes” comment.

Still, despite the relief rally and uptick in sentiment on Friday, there remains significant uncertainty surrounding the extent of COVID-19’s impact on the global economy. The situation clearly remains fluid as authorities around the globe tighten containment measures (i.e., school closures, cancelled professional sports and increased travel restrictions to name a few). As such, forecasts continue to grind lower with global GDP now expected to expand just 1.6% in 2020—the slowest pace since the Global Financial Crisis. Meantime, our growth forecasts for the U.S. and Canada have been trimmed to 0.5% and flat this year, respectively.

North American Sector Performances

(% change over period)

Table 2 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 3 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Sector Performance