Energy and financial stock markets experienced a massive sell-off on Wednesday as the investors worried for the economic implications of the pandemic in the global economy. The US dollar has been the largest winner across the market acting as the only safe-haven asset for the investors.

 

Coronavirus Update:

Global cases: At least 207,860, according to the latest figures from the World Health Organization

Global deaths: At least 8,657, according to the latest figures from the WHO

Italian health ministry reported 2,978 people in Italy have died as a result of COVID-19 while the total number of confirmed cases rose at 35,713 as of 6 p.m. local time on March 18.

 

Market Reaction:

The US stock markets plunged by 6% on Wednesday while the Asian-Pacific markets followed in deep red this Thursday morning.

The Dow Jones index finished the day with 6.3% losses at 19,898.92, marking its first close below 20,000 since February 2017. The S&P 500 and Nasdaq indices dropped 5% to closed nearly 30% below their record highs set only few weeks ago. Furthermore, the risk aversion sentiment continued this morning with Dow futures losing another 2%, trading near 19.600 points.

Fig 1, Dow Jones index, Daily chart

Major Asian-Pacific stock markets also fell during morning session, with South Korean Kospi leading the losses with 9%, Hang Seng lower by 5%, Philippine index at -11%, while Australian, Japanese and Chinese indices settled with minor damages.

 

Crude Oil

Crude oil prices had their third-worst decline on record, losing 24% in a single day. WTI and Brent oil price settled near $20 and $24 per barrel respectively, at their lowest level since 2002.

Fig 2, WTI crude oil , Monthly chart

Travel bans combined with the global economic lockdowns have weight on the oil demand while increased productions from Russia and Saudi Arabia have deteriorated the already oversupplied market.

However, both oil contracts managed to rebound by 10% this morning, pricing at $23 and $26.50 per barrel on bottom buying trades and on hopes for the synchronized fiscal and monetary stimulus plans.

 

Safe Havens:

Safe havens Gold and US Treasuries pressured yesterday despite the general risk aversion and stock market sell-off. The main reason for the fall was the turn from investors towards US dollar as the ultimate safety asset. Gold price dropped by 3%, breaking below $1.500 once again while the 10-year US T-bill yield rallied near 1.23% and the 30-year yield at 1.85%.

Forex Market:

The US dollar has extended its recent gains across the board as the DXY-dollar index rose above 101 level for the first time since 2017. Investors have been selling every financial asset in the market to keep their money in dollars on pandemic fears. EUR/USD dropped below 1.09 level while the USD/JPY rose above 109 while GBP/USD dropped near 1.15, levels haven’t been seen since 1985.

Commodity-related Australian dollar collapsed to its lowest level since 2002 against US dollar amid lower crude oil and industrial metal prices.

Fig 3, AUD/USD pair, Monthly chart

AUD/USD dropped as low as 0.55 level yesterday before bounced at 0.57 this morning after the Reserve Bank of Australia cut its official cash rate by 25bps to a record low of 0.25% to support the local economy.

 

Economic Calendar for March 19, 2020:

 

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Vrasidas Neofytou

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