Week from 27 January to 2 February 2020
Will the coronavirus outbreak hit the global economy harder than SARS did in 2003? This world specter is haunting financial markets due to the deadly virus’ ability to spread. This explains why a growing number of countries have tightened travel restrictions and many businesses have temporarily closed their operations in China. Recession fears are resurfacing, thereby pushing risky assets deep into the red.
The VIX ended trading at 18.84 on Friday (+29.4% WTD), the S&P500 fell 2.12% over the week and the Nasdaq Composite slumped 1.76% but global equity indices suffered substantially more severe declines (MSCI Emerging Markets down 5.10% while the MSCI World dropped 2.21%). Unsurprisingly European and Japanese markets followed the trend with the MSCI EMU and the Nikkei plunging 3.30% and 2.61% respectively. Chinese markets remained closed as authorities had extended the Lunar New Year break.
Most sectors nose dived, travel-related stocks, including airlines, casinos, hotels and entertainment being those hardest hit while stocks exposed to China’s growth such as technology, materials and energy, pressured the markets. As regards the energy sector (down 5.65% WTD), it is worth noting that the WTI crude oil price (Nymex) fell below $52 a barrel (-4.85% WTD, -18.22% over the last four weeks!) and, to make matters worse, Exxon Mobil Corp, the largest publicly-traded integrated U.S. energy company, missed quarterly estimates for both revenue and earnings, hence the heavy toll on the company shares: -6.33% WTD.
Only two sectors weathered the storm: first, consumer discretionary (+0.13% WTD) thanks to a pop in shares of Amazon (+7.9% WTD) after the company reported its Q4 2019 earnings on Thursday, beating Wall Street’s expectations ; second, the most defensive sector, utilities (+0.81%) which also stayed afloat, as is often the case during a market correction.
The investor flight from stocks to traditional safe haven assets is reflected by the 10-year U.S. Treasury yield which sank to five-month lows (from 1.7% to 1.5%). As the 3-month T-bill remained virtually unchanged at 1.55%, it means that the yield curve is slipping towards inversion. The recession warning light blinks red again. Investment grade corporate bonds also shined on both sides of the Atlantic (+0.37% in Europe, +0.60% in the U.S.). By contrast, high yield bonds and emerging debt lost ground (Euro high yield: -0.33%, U.S. high yield: -0.24%, Emerging debt in local currencies: -0.99%).
Gold logically rallied again (sixth positive week in a row) in the wake of the risk off move (spot price at $1,589.15/Oz), posting its best monthly gain since August (+4.7%).
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-01-31/global