Markets and Key Events

Coronavirus catches up with the US

The US equity market, which up until now had held up relatively well, capitulated this week, suffering its worst one-day fall since 1987, whilst US Treasury yields, which move inversely to price, plummeted to record lows. The sharp fall in markets was initially caused by a collapse in the oil price over the weekend, following Saudi Arabia’s decision to launch an oil price war, sending crude oil prices down by over 30% in a day. On Wednesday night, having previously referred to the coronavirus as ‘fake news’, President Trump announced a ban on Europeans travelling to the US to combat the spread of the virus. The announcement, rather than calming nerves as intended, sent markets into free fall. However, by Friday, markets began to claw back some losses, as the sheer speed and ferocity of the selloff, led many to conclude it was overdone.

Equity bloodbath

As of 12pm London time, US equities over the week have fallen 16.5%. However, since their peak on the 19th February, they have fallen 26.7%, taking them firmly into bear market territory. In this week alone, US equities saw two days that rank in the top twenty worst one-day falls since 1927. European equities fell 14.0%, now down 27.4% since their recent peak. UK equities fell 13.0%, down 25.7% since this year’s peak. Japanese equities fell 14.3%, collapsing 27.8% from their high point. Australian equities tumbled 10.9%, having now fallen 22.7% from their peak this year. Emerging markets fell 12.7%, down 23.0% from their highest point this year. Whilst Chinese equities only fell 4.8%, now only down 7.3% from their peak this year, as the Chinese appear to have experienced the worst of the coronavirus and are now on a recovery phase.

US Treasuries rally to a record low yield

US Treasuries rallied hard on Monday, as yields fell to their lowest level in history, as the 10-year US Treasury bond fell as low as 0.34%; they have since sold off and are now yielding 0.93%. 10-year German Bunds are yielding minus 0.59%, having been as low as minus 0.89% on Monday, despite the European Central Bank not cutting interest rates. UK gilt yields fell to 0.09% this week, in a week that the Bank of England cut interest rates by 0.25%, after the US Federal Reserve had cut rates by 0.50% last week; Gilts are currently yielding 0.35%. The US dollar, having fallen sharply against all expectations in recent weeks, staged a recovery, with the US dollar index (US dollar versus a basket of internationally traded currencies) rising by 2%, and over 4% versus Sterling.

Gold offers little protection

Counter intuitively gold had another poor week, falling by 5.1%, as investors sell down their most liquid holdings to meet margin calls. It is currently trading at $1,586 an ounce.

Price war crucifies crude oil

Crude oil had a horrendous week, as Saudi Arabia embarked on a price war, catching markets off guard. Prior to this, Saudi had been calling for production cuts to support the oil price as the global economy slowed following the emergence of the coronavirus. However, Russia, which up until now had supported moves by OPEC (Organisation of the Petroleum Exporting Countries), declined to cut production. This has been interpreted as a calculated move to drive the US shale oil industry out of business, which was already hurting from a falling oil price. Consequently, Saudi Arabia, by far the lowest cost oil producer, have chosen to produce more oil and reach for greater market share. Many market commentators believe this is more about bringing Russia into line with Saudi’s view, rather than an attack on the US oil industry, which is now, incredibly, the largest oil producing country in the world. Brent crude oil, having traded as low as $31 a barrel on Monday, is currently trading at $35.2.

The information provided above is for Professional Advisers: All data has been sourced from Lipper. Any investment must be made in conjunction with reading the relevant KIID or Investment Mandate. Clients should be aware that the value of investments and the income from the may fall as well as rise and they may not get back the amount originally invested. Investors should note that the views expressed and information given were current at the time of publication but may no longer be so and/or may have been acted upon by the Investment Manager already. Source SmartIM