Global financial markets plunged during the first day of the week, reacting on the synchronized global governments and Central Bank’s moves in response to the coronavirus outbreak. The Dow Jones futures dropped by 1.100 points this morning, triggering the “limit-down” level of 5%.

The US Federal Reserve announced on Sunday an emergency rate cut of 100 bcp to a target range of 0% to 0.25% down from 1% to 1.25%. Furthermore, the bank will launch a massive $700 billion quantitative easing program.

 

Coronavirus Update:

Global cases: At least 153,648, according to the latest figures from the World Health Organization

Global deaths: At least 5,746, according to the latest figures from the WHO

 

Market Reaction:

US market futures collapsed during the opening hour of Sunday’s night session in reaction to the emergency rate cut by the FED. Investors worry for the disruption of the economic activities in the US and around the world, which might slowdown the economic growth and squeeze the corporate earnings.
All the three major US stock market’s futures hit “limit down” levels of 5%, a move made by the CME futures exchange to reduce panic in markets. No prices can trade below that threshold, only at higher prices than that down 5% limit. Dow lost near 1.100 points, indicating a lower opening just below 22.000 points.

Fig 1, Dow Jones index, Daily chart

 

Safe Havens:

The dramatic rise of the infection cases in the USA and Eurozone together with the recent stock market sell-off, have sent investors into the safety of Gold and US Treasuries.

Fig. 2, Gold price, Daily chart

Gold is pricing near $1.545/oz, up 1% for the day, but well below its early Asian morning highs of $1.570/oz. The yellow metal failed to receive more safe-haven bids since it peaked near $1,700 in early March, losing more than 6% or $150/oz. The main reason for the softness in the gold’s price was that investors forced to liquidate positions in bullions (Gold-Silver) to meet their margin call requirements after the stock market melt-down.

However, US Treasuries are holding most of their morning gains supported from the Fed’s rate cut combined with the promise of more bond buying. As a result, the U.S. 10-year Treasury bill is yielding almost 30% lower at 0.68% while the U.S. 30-year Treasury yield dropped near 1.28%.

 

Crude oil:

Crude oil prices extended losses by 8% on Monday morning amid the general negative market sentiment. WTI oil price is struggling to hold the $30 psychological support level, while Brent oil trades near $32 per barrel.

Fig 3, WTI oil contract, Weekly chart

The energy market hasn’t found support from the latest developments in the USA, where U.S. President Trump’s initiation to fill strategic oil reserve at the world’s largest oil consumer “to the top”. The synchronized global government’s measures to contain the virus have caused huge number of flight cancellations and home quarantines which might lower the oil demand outlook.

 

Forex Market:

The emergency stimulus actions from the US Federal Reserve pressured the U.S. dollar this morning. The greenback has moderated across the board, as USD/JPY initially dropped below 106 levels before rebounding at 106.4 while the EUR/USD rose near 1.12.

The commodity-exposed Australian and New Zealand dollars fell by 2.5% and 1% against the Japanese Yen and US dollar respectively.

 

Economic Calendar for March 16, 2020:

 

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Vrasidas Neofytou

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