Week from 11 to 17 May 2020
Wall Street winced after Dr. Anthony Fauci (leading U.S. infectious disease expert) told Congress that the coronavirus was not under control yet and Federal Reserve Chairman Jerome Powell said that the “path ahead is both highly uncertain and subject to significant downside risks”. He made it clear that the Fed will not use negative interest rates to limit the impact of the coronavirus pandemic on economy, as traders had been increasingly betting on. He added that “the passage of time can turn liquidity problems into solvency problems.”
Furthermore, President Trump continued to add fuel to the fire of the U.S.-China conflict, tweeting that “100 trade deals wouldn’t make up” for coronavirus, “and all those innocent lives lost!”, while more than 2.98 million Americans filed for state unemployment benefits last week bringing the job losses to approximately 36.5 million since the beginning of the health crisis. Last and not least, total U.S. industrial production declined 11.2% in April. This is the steepest one-month fall in records dating back more than a century!
The Dow Jones Industrial Average fell 2.65%, the S&P 500 was down 2.26%, while the Nasdaq Composite slipped 1.17%. The CBOE volatility index (VIX) rose again above 30. This is the worst week since the end of March. It should also be noted that small cap stocks substantially underperformed their large cap counterparts as evidenced by the Russell 2000 (down 5.46%).
Similarly, fears of prolonged economic downturn pushed European stock indices lower (MSCI EMU down 4.54%). Asian markets followed suit though to a lesser extent (Nikkei 225 and Shanghai composite down 0.70% and 0.93% respectively).
Energy (-7.61% though oil prices surged again – WTI crude up 18.96%/$29.43 per barrel – in the wake of an unexpected draw in weekly U.S. inventories), real estate (-7.26%), industrials (-5.90%), and financials (-5.68%) posted some of the largest percentage losses among the 11 major S&P sectors. Health care was the only sector above the waterline (+0.88%).
Investors fled to safe havens such as gold which shined all week long (+2.47%) and U.S. 10-Year Government bonds (yield moving a bit lower from 0.69% to 0.64%). By contrast, investment grade and high yield credit indices remained under pressure on both sides of the Atlantic (IG EUR: -0.62% ; IG USD: -0.05% ; HY EUR: -0.58% ; HY USD: -0.83%).
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-05-15/global