Three Months that Shook Global Markets

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Three Months that Shook Global Markets

March 30: The damage inflicted by coronavirus and the oil price collapse on the global financial markets this year must have been the most destructive sell-off since the Great Depression, Reuters said in a news report published on Sunday.

According to the news agency, the numbers have been staggering. $15 trillion has been wiped of world stock markets. Oil has slumped 60 percent as Saudi Arabia and Russia have started a price war and emerging markets like Brazil, Mexico and South Africa have seen their currencies plummet more than 20 percent.

“Volatility and corporate borrowing market stress has spiked on worries that whole sectors could go bust, airlines have had half their value vaporized, while cratering economies risk a new wave of government debt crises,” the news report states.

According to Chris Dyer, director of global equity at Eaton Vance, “It has been like a train wreck. You could see it coming and coming and coming, but you just couldn’t stop it happening.”

Stocks in China, where the virus hit first, have faired relatively well in comparison with only an 11 percent drop in dollar terms, but the impact on other major emerging markets has been devastating as their main commodity markets, and currencies, have also collapsed.

According to Reuters, Russian stocks, which topped the tables last year, have been routed 40 percent in dollar terms. South Africa, which was stripped of its last investment grade credit rating on Friday, has fallen by the same percentage, though Brazil has been the worst, plunging 50 percent.

Brent crude oil has fallen by 62 percent in the quarter to just $25 a barrel. This was not only because of the coronavirus crisis, but also the price war between Saudi Arabia and Russia, which is putting their public finances at risk.

Industrial metals like copper, aluminum and steel have all dropped 15-22 percent and some agricultural staples like coffee and sugar are down 17 percent and 10 percent.

“These are truly historical moments in the history of financial markets. 2020 will go alongside 1929, 1987 and 2008 in the text books of financial market panics,” Reuters quoted Deutsche Bank’s strategist, Jim Reid, as saying.

So are they any places to shelter? Yes, but not many, according to the news report. Sit-on-your-sofa-suited stocks like Netflix and Amazon have risen 10 percent and 2.5 percent respectively and some specialist medical equipment companies have surged.

“Ultra-safe US government bonds have returned 13 percent as the Federal Reserve cut U.S. interest rates to effectively zero, leading a charge of around 62 interest rate cuts globally. The dollar has rocketed against emerging market currencies. It had also shot up against the majors too, but has eased back over the last two weeks and will end the quarter only 2 percent up against those bigger currencies.”

JPMorgan reckons the coronavirus will have pushed the world economy into a 12 percent contraction in Q1 and with pandemic still spreading rapidly and keeping large parts of the global economy shuttered it is unlikely to get much easier in Q2, according to the report.

However, the G20 governments have promised a $5 trillion revival effort, major central banks have cut rates and restarted asset purchases. Markets bounced big last week until Friday came and may still end Q1 on a relative high.

According to Reuters, Stephane Monier, chief investment officer of Lombard Odier, is looking to see whether infection rates in Europe and elsewhere peak as they did in Asia.

“If they do, markets could see a V-shaped 30 percent recovery, although if they do not and cases jump in Asia again as lockdowns are lifted, it could be akin to a “war” situation which would impact the economy for 1-1/2 years.”

 

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