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16.03.2020

Global markets plunge, Brent crude at $30 amid the coronavirus crisis

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Global stocks suffered immense losses amid the spreading coronavirus

  • Global stocks suffered immense losses amid the spreading coronavirus
  • The dollar gained versus major counterparts over the past week
  • EURUSD plunged from highs around 1.15, to finish the week around 1.11
  • The ECB decided not to cut interest rates but expanded its asset purchases by 120 billion euros
  • Oil prices posted the biggest weekly percentage drop since 2008
  • The OPEC’s Joint Technical Committee meeting that was scheduled for March 18 was canceled

Asian equities

After a rout since the start of the week, stocks recovered on Friday as several central banks from the Federal Reserve to the RBA pumped liquidity into their financial systems. Japan’s Nikkei fell 10% before paring the drop to close 6% lower. Australia’s S&P/ASX200 had its most volatile trading day on record, falling over 8% before surging to settle 4.4% higher after the close.

Japan’s Nikkei closed down 6.1% after losing as much as 10%. South Korea’s Kospi index more than halved its loss to 3.4% from over 7.5% earlier. Hong Kong’s Hang Seng index closed down 1.1% while the Shanghai Composite Index was down 1.2%. Still, the the MSCI world equity index hit a three-year low in Asian hours and was down 16% for the week - its worst run since October 2008.

US equities

On Friday, U.S. stocks jumped the most since 2008 to cap an extremely bearish trading week as President Donald Trump pledged to do whatever it takes to protect the economy from the coronavirus fallout. The S&P 500 surged more than 9%, day after stocks’ worst session since 1987. The Nasdaq dropped 8.16%, for its worst week since Feb 28 when it lost 10.54%. The Dow was down 10.4% for the week.

President Trump declared a national emergency to combat the coronavirus epidemic - the national emergency declaration unleashes $50 billion of funds to help contain the pandemic. Trump also said interest payments will be waived on the government’s share of the near $1.6 trillion pile of student debt.

Currencies

The dollar gained versus major counterparts over the past week, mostly due to the fact that the coronavirus fears sparked safe-haven demand for the U.S. currency. Coronavirus cases in the US topped 500, which made the White House to plan the economic response, with Trump proposing eliminating payroll tax through the end of the year. The greenback also gained as the other major currencies weakened amid the speculations on potential stimulus moves coming from central banks and governments due to the fast spreading coronavirus. During the mid-week, the dollar eased as traders were disappointed by Trump’s virus response.

On the data front, US consumer prices grew 0.1% in February as food costs rose, weekly jobless claims fell, producer prices came in weak and posted the biggest drop in five years while consumer sentiment tumbled in March as coronavirus threat exploded into view. In other news, Fed announced an emergency rate cut and started bond purchases under ramped up liquidity program while Trump declared national emergency over coronavirus.

Against this backdrop, EURUSD plunged from highs around 1.15, to finish the week around 1.11. The European Central Bank decided Thursday not to cut interest rates, despite market expectations for a reduction amid the ongoing coronavirus outbreak. At the same time, the regulator announced measures to support bank lending and expanded its asset purchase program by 120 billion euros. During the press-conference, Lagarde said that the spread of the coronavirus has been a major shock to the growth prospects of the global economy and the euro areas economy.

Commodities

Brent crude plunged aggressively last week and posted the biggest weekly percentage drop since 2008 after Russia rejected further OPEC+ cuts. Adding to the negative sentiment in the market, Saudi Arabia announced massive oil discounts in all-out price war. For the week, Brent lost 25%. A combination of growing fears over the demand hit from the coronavirus pandemic and Saudi Arabia’s launch of a price war against Russia caused a massive sell-off in the market.

Besides, the OPEC’s Joint Technical Committee meeting that was scheduled for March 18 was canceled, thus sending a clear signal that large exporters are not ready to take measures to support the market just yet. As a result, Brent extended the decline to long-term lows around the $31 handle and failed to shrug off the downside pressure afterwards, as the futures refreshed lows at the $30 figure on Monday, March 16. Moreover, it looks like the market may suffer further losses in the short term despite the oversold conditions.