Week from 9 to 15 March 2020
It was the wildest week on Wall Street since the Lehman Brothers crisis in 2008.
Monday started with the biggest oil-price collapse since 1991 (Crude Oil WTI Futures tumbling 25%) leading to a new wave of panic selling (major stock indices plunging 8%) and a sharp spike in volatility (VIX hitting a first peak well above 55).
However it was just the beginning of a dramatic descent into hell. Though the Federal Reserve offered $1.5 trillion in three tranches of $500 billion repo loans to support financial market functioning, stock indices plunged again into turmoil on Thursday, with historic double-digit declines (-17% for the FTSE MIB, -12.3% for the CAC40, -10% for the DJIA, i.e. its steepest one-day decline since October 19, 1987) and the VIX index at the 2008 level (above 76!), after Christine Lagarde failed to convince market participants with her package of measures to alleviate the economic chaos. To make things worse, Donald Trump announced the same day that the United States will suspend all travel from Europe.
That said, he declared the national emergency on Friday, a move which would “open access to up to $50 billion” in funds for states and municipalities to tackle the coronavirus pandemic. The market rebound resulting from this declaration was not enough to offset the losses suffered in the wake of the double crash. Lastly, the Federal Reserve decided to cut interest rates (to near zero) for the second time in less than two weeks on Sunday.
In spite of the monetary and fiscal stimulus measures put forward to overcome the global health crisis, the main asset classes ended the week down:
- Stocks (S&P500: -8.79%, Russell2000: -16.50%, MSCI EMU: -20.02%, Nikkei: -15.99%, Shanghai Composite: -4.85%),
- T-bonds (U.S. 10-Year Treasury yield rising from 0.74% to 0.96% and German 10-Year Bund from -0.71% to -0.54%)
- Investment grade corporate bonds (-6.49% in the U.S., -2.98% in Europe)
- High-yield bonds (-7.61% in the U.S., -7.83% in Europe)
- Emerging debt in local currencies (-7.44%)
In a nutshell, there was no safe haven. All the sectors were hurt by the rout even if the loss differential was exceptionally high (from -5.2% WTD for tech stocks to -24.28% for energy stocks). Even gold lost ground (-9.31%).
The issue is no longer whether the global pandemic may result in lower economic growth in the next months but rather how deep the recession will be as countries around the globe are closing their borders, imposing strict entry and quarantine requirements and restricting large gatherings in order to contain the spread of the Covid-19.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-03-13/global