Week from 16 to 22 March 2020
Only five days ago, we were writing “it was the wildest week on Wall Street since the financial crisis in 2008”, but there may be worse to come. The market situation has further deteriorated this week and traders have experienced incredible price swings in the absence of clarity on the possible trajectory of the COVID-19 pandemic. A vast majority of countries, states and cities have now decided to go into lockdown, threatening to push the global economy into a deep and long recession.
All the asset classes were sold off around the world without distinction, investors globally rushing into U.S. dollar and short-dated T-bills (3-month U.S. Treasury bill rate dropping to only 0.05%).
The S&P 500 plunged 14.98%, its worst weekly stretch since October 2008, and the Nasdaq Composite tumbled 12.64% overshadowing the $1 trillion stimulus plan to help U.S. households and businesses overcome the present crisis. It is worth noting that panic-driven selloffs triggered market circuit breakers all week long, reflecting mass capitulation.
European and Asian markets also closed in a sea of red though to a lesser extent (MSCI EMU, Nikkei and Shanghai Composite down 1.80%, 5.04%, 4.91% respectively). Several European countries have eventually banned short selling on stocks as volatility has increased dramatically.
All the S&P sectors displayed double-digit losses, the best ones (or least bad!) being consumer staples (-11.32%) and communication services (-12.25%).
Real estate suffered the most severe drawdown (-22.99%), followed by energy (-19.63%) as oil prices heaped further pressure on the industry. Oil indeed moped through one of the gloomiest weeks in the record books (WTI down 29.31% at $22.43/bbl). The Saudi-Russian price war continues to wreak havoc.
The week was similarly chaotic in credit markets in spite of the “Commercial Paper Funding Facility” put forward by the Federal Reserve to support the flow of credit to U.S. households and businesses and the €750bn bond-buying programme (including qualifying corporate debt) launched by the European Central Bank. Investment grade corporate bonds slumped 8% in the United States and 5% in Europe while high-yield bonds absorbed a 10.58% weekly decline (in the U.S., -9.36% in Europe).
Long term government bonds did not alleviate investors’ anxiety as the yield of the U.S. 10-year Treasury was virtually unchanged (0.92%) while that of the German Bund for the same maturity moved higher, from -0.54% to -0.32%. Same trend for France’s 10-year OAT bond which has now reverted to positive territory (+0.12%).
Lastly, gold was another victim of the dash for cash, falling below $1,475/Oz on Thursday, down more $200 from its peak early last week. Investors (hedge funds especially) sold the precious metal to cover margin calls in other markets. It finished the week down 2.12%.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-03-20/global