Week from 24 to 29 February 2020
Earlier this month we wrote that the coronavirus could be a black swan. With new infections reported around the world now surpassing those in China, it is no longer a simple assumption, but an economic truism. Virus-related disruptions to international travel and supply chains now stoke fears of a prolonged recession, especially after the sharp drop in China’s manufacturing PMI: record low of 35.7 in February (worse than 2008) even though the figure stood at 50 in January.
Unsurprisingly, investor sentiment has deteriorated dramatically, triggering one of the steepest weekly selloffs in history, with the VIX skyrocketing significantly above 40 (+135%). The S&P500 and the Dow Jones Industrial Average sank 11.49% and 12.36% respectively (i.e. the worst week since 2008) despite Federal Reserve Chairman Powell’s message on Friday: the central bank could “act as appropriate to support the economy”. The same trend prevailed everywhere on the globe (MSCI World down 10.89%).
All of the S&P’s 11 industry sectors were severely hit by the risk-off move. Communication services (down -9.45% WTD), consumer staples (-10.44%), and healthcare (-10.62%) fell the least if we may say so, while energy (down -15.37% as U.S. crude nosedived by 16.15%) and financials (-13.54%) were the biggest losers.
Investors did not hesitate to flee risky assets, thereby pushing Treasury yields to record lows (U.S. 10-year yield falling from 1.46% to 1.13%, German 10-year yield from -0.43% to -0.61%). The escalation of market worries also favoured investment grade corporate bonds in the U.S. (+0.37%). By contrast, the coronavirus took a heavy toll on high yield bonds and emerging debt in local currencies (both asset classes down about 2.8%).
Last but not least, it is worth noting that gold, which usually acts as a reliable harbor in stormy periods, plummeted by 4.74% over the week as many market players were forced to liquidate assets across the board to meet margin calls.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-02-28/global
