Week from 17 to 23 February 2020
With the rising number of coronavirus infections around the globe, concerns are growing about the epidemic’s impact on corporate earnings, even if the Chinese central bank has rolled out more measures to help support its economy (interest rate recently cut on its medium-term lending facility).
By way of illustration, Apple announced at the beginning of the week that it will miss its revenue guidance for the first quarter of 2020, due to work slowdowns and lower iPhone demand in China, in the wake of the coronavirus. The Apple stock price logically fell by -3.66% WTD. Overall, technology stocks, which are very sensitive to news related to China’s growth, retreated from record highs (-2.53% WTD, the worst performance among major S&P sectors), while defensive sectors such as real estate (-0.19%) and utilities (flat) led the pack, withstanding renewed volatility (VIX up 25% above 17). It is also worth noting that energy was in the red (-0.95%) although U.S. crude futures traded 2.56% higher at $53.38 a barrel. On the one hand, the International Energy Agency (IEA) said last week the coronavirus is set to cause oil demand to fall by 435,000 barrels per day (bpd) year-on-year in the first quarter, on the other hand, the OPEC and its allies now have an agreement to cut oil output by 1.7 million bpd till the end of March.
As regards the broad-based indexes, the S&P500 slipped 1.25%, the Nasdaq Composite lost 1.59% and the Dow Jones Industrial Average fell 1.38%. Most stock markets in the world were hit by this sharp trend reversal (MSCI EMU: -0.96% ; MSCI EM: -2% ; Nikkei: -1.27%) with the notable exception of China (Shanghai composite up +4.2%!).
Against this gloomy backdrop, the flight-to-quality favoured Treasuries (U.S. 10-year yield dropping below 1.5% for the first time since August 2016, 10bps below the 3-month T-bill yield, thereby indicating that the yield curve is inverted again), gold (futures rising 3.91% to $1,644.60/oz, i.e. significantly above the psychological resistance at $1,600/oz) and last but not least silver (futures up +5.62%). Same picture for investment grade corporate bonds (+0.12% in Europe, +0.48% in the U.S.) while high yield bonds treaded water (+0.11% in Europe, +0.05% in the U.S.). By contrast, emerging debt lost ground (-0.82% in local currencies).
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-02-21/global