US major stock markets fell by 13% on Monday, suffering their worst trading day since the “Black Monday” market crash in 1987. The massive sell-off was triggered after US President Donald Trump warned the economic disruption from the virus could last into the summer.

The synchronized monetary and fiscal stimulus measures announced by local governments and their Central Banks have failed to calm down investor fears for a global recession amid the virus outbreak.

However, global stock futures and crude oil prices rebounded by 3% during Tuesday’s Asian morning session after President Donald Trump tweeted that the government will support those industries that were affected most from the virus.

 

Coronavirus update:

Global cases: At least 168,019, according to the latest figures from the World Health Organization

Global deaths: At least 6,610, according to the latest figures from the WHO

 

Market Reaction:

Global financial markets experienced a massive sell-off during Monday’s trading session. The Dow Jones index lost almost 3,000 points, finishing the day at 20,188.52, or 12,9% which was its worst day since the “Black Monday” market crash in 1987 and its third-worst day ever. The S&P 500 dropped 12% to 2,386, hitting its lowest level since December 2018, while Nasdaq closed 12.3% lower at 6,904 in its worst day ever.

Fig 1, Dow Jones index, Weekly chart

The Dow Jones index has lost more than 31% from its all-time high, while the S&P 500 and Nasdaq indices lost nearly 29% as well.

 

VIX closed at record high:

The VIX- volatility Index, which is a well-known fear factor index amongst investors, had posted its highest-ever settlement at 82.70 last night.

Fig 2, VIX index, Daily chart

VIX had rallied from February’s lows of 15 up to the record highs of 82 in just 3 weeks’ time, rising even higher than where it had topped at 80 level during the financial crisis of 2009.

 

Crude Oil fell by 10%:

Crude oil price dropped by 10% on Monday as it continues to be hit on both the demand and supply side. The virus outbreak, travel bans and the home quarantines have reduced the global crude oil demand. Moreover, the “oil price war “between OPEC group and Russia has flooded the already oversupplied market with some extra million barrels per day.

WTI crude oil price settled at $28.70 a barrel or -9.5%, to settle at $28.70 while the international benchmark Brent crude fell -11%, finishing the day at $30.05 per barrel.

However, both oil contracts rebounded during Tuesday’s Asian morning session by 4%, pricing at $30 and $31 per barrel respectively on a general improved market sentiment.

 

Precious Metals:

Gold price broke below $1.500/oz and Silver price moved below $13/oz as investors liquidated positions on precious metals to meet margin requirements due to the massive losses in equities.

Fig 3, Gold price, Daily chart

Gold and Silver prices are down 12% and 30% from their multi-year highs reached only two weeks ago.

 

Forex Market:

The Japanese Yen was the strongest currency across the board yesterday amid the risk aversion sentiment. Yen gained more than 2% against commodity-related currencies AUD and NZD while the USD/JPY hit intraday lows at 105.50 before rebounding at 106.50 this morning on improved sentiment.

Furthermore, the US dollar softened on Monday after the emergency rate cut by 100 bsp from the Federal Reserve to support the injured US economy from the virus effects. DXY dollar index trades near the 98.20 levels while the EUR/USD pair reached 1.125 before retracing back to the 1.115 levels this morning.

 

Economic Calendar for March 17, 2020:

 

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Vrasidas Neofytou

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