Canada Stocks Fall as Outlook Darkens on Virus, Company Profits

(Bloomberg) -- After suffering its worst quarter since the global financial crisis, Canadian stocks slumped on Wednesday as investors digested worsening U.S. coronavirus figures and assessed the pandemic’s impact on corporate profits.

The S&P/TSX Composite Index lost 3.8% on the first day of the second quarter, with 10 out of its 11 sectors in the red. Gold stocks rallied as market jitters led to a surge in haven assets.

Montreal-based Dollarama Inc. suspended its fiscal 2021 guidance, saying “it is impossible to forecast the impact of the pandemic,” while mining firm Teck Resources Ltd. withdrew its financial forecasts and said it was considering a full shutdown of the Fort Hills mine to cut costs as local oil prices hit record lows.

To add to the wall of worry, Prime Minister Justin Trudeau on Wednesday said social distancing measures in place to stop the spread of Covid-19 could be in place for weeks or even months.

“Canadian equities are combating a triple threat: fear, economic shutdown and plunging oil,” said Brian Belski, chief investment strategist at BMO Capital Markets. “It seems to us that ‘defaulting to the negative’ has become excessively consensus, with optimism and common sense carrying the label of Pollyanna or flippancy.”

Rock-bottom prices for Canadian oil and a lack of demand are setting the stage for “inevitable” production cuts, according to Goldman Sachs, which says the industry could run out of storage space within weeks.

“Yes, the oil shock is a perceived negative for Canada -- especially psychologically. However, many investors forget that Canadian equities can ‘stay afloat’ and in some cases do very well when oil is suffering,” Belski said in a report published Wednesday.

Canaccord Genuity slashed its S&P/TSX Composite forecast to a year-end target of 14,500 down from 17,900 after the benchmark slumped 22% in the first quarter. The firm’s strategist Martin Roberge expects a 30% profit decline in the “2020 recession” and added that while the period of indiscriminate selling for stocks may have passed, it’s still too early to be overweight in the equity market.

The cost of Trudeau’s fiscal package to protect the economy from the impact of Covid-19 has reached about C$250 billion ($176 billion), according to the latest figures from the finance department.

One of the flagship programs, a plan to subsidize 75% of wages for Canadian workers, will cost C$71 billion, Finance Minister Bill Morneau told reporters Wednesday in Ottawa. Along with other measures such as the monthly income replacement scheme, direct support for companies and households will run the government C$105 billion, Morneau said.

Commodities

• Western Canada Select crude oil traded at a $15.50 discount to West Texas Intermediate
• Spot gold rose 0.9% to $1,591.51 an ounce

FX/Bonds

• The Canadian dollar fell 1% to C$1.4197 per U.S. dollar
• The 10-year government bond yield fell 6.6 basis points to 0.631%

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