Equities were down across the board for the week as investors remained fearful about the future amid closing borders and increasingly stringent government lockdown measures. Indeed, the so-called fear index hit a record high – the CBOE VIX Index, which acts as a measure of US stock market volatility, rose above the record peak set during the financial crisis in 2008.

The week had started with another massive sell-off, with the US S&P 500 Index slumping 12% on Monday, and the Dow Jones soon falling below the level it was at on Donald Trump’s inauguration in January 2017. The tumble came despite the Fed announcing an emergency 100 basis point rate cut on the Sunday evening, which effectively reduced the federal funds rate to zero. The bank also announced a range of additional supports, including $700 billion of asset purchases and the reduction of reserve requirements for banks to zero.

European markets held up better, reflecting a positive reaction to ECB efforts and a relative catch-up after missing out on the US market rally late on the previous Friday. However, in the latest week, European markets had closed for the weekend when sentiment in the US turned negative once more – that partially reversed the upswing seen on Thursday and the early part of Friday. Still, the comparisons are stark. The S&P 500 lost 15% in the week, while Germany’s Dax and France’s Cac-40 recorded relatively modest declines of -3.3% and 1.7%, respectively. Ireland’s ISEQ tumbled 10.6% as the government signalled massive numbers of layoffs were looming as businesses closed.

Policy Bazookas
Policymakers were in action around the world, with governments and central banks pledging major interventions to mitigate the economic impact. In the US, that included a $100 billion relief package to tackle the outbreak, while Congress was working on a stimulus plan of more than $1 trillion that will likely include so-called ‘helicopter’ payments to Americans. Companies and individuals are to be allowed to defer tax payments, while President Trump pledged bailouts for the likes of Boeing. The hotel and travel industry also discussed a bailout with the White House. The Fed announced funding facilities and increased access to dollars to global central banks facing liquidity shortages – the US dollar strengthened further in the week as banks appeared to ‘hoard’ the greenback.

The European Central Bank announced a €750 billion bond-purchase program, taking the planned total to €1.1 trillion. This action helped drive a narrowing of spreads between core and peripheral eurozone bonds that had blown out early in the week. Italian 10-year yields spiked early in the week before falling back to 1.6% by the weekend. Similar-dated Greek bonds threatened to rise above 4% before easing back to 2.5%. Both bonds were yielding less than 1% a month ago.

In the UK, the Bank of England reduced its benchmark rate again, trimming it to 0.1% from 0.25%, and increased its bond-buying program by £200 billion. The government announced a huge fiscal package, while stating that it would pay temporarily laid-off employees up to 80% of their salaries (capped at £2,500 per month). Downing Street also belatedly joined international counterparts in shutting down schools, pubs and cafes in an effort to slow the pace of infection. Sterling continued to weaken, hitting its lowest value versus the US dollar since the 1980s.

Other central banks cutting rates in the week included Australia, South Korea, Brazil, New Zealand and South Africa.

Commodity turbulence
Oil prices fell to new multi-year lows, with Brent crude briefly dipping below $25 per barrel en route to a 20% weekly decline. President Trump indicated he would get involved with the oil price war between Saudi Arabia and Russia when it was ‘appropriate’. The energy sector was one the poorest performers in a turbulent week for equities.

Even as investors sought defensive assets, the gold price still posted a 2% decline for the week. With activity at a near-standstill in many of the world’s leading economies, industrial metal also struggled, with copper down 10%.

China
Among the few bright spots in a difficult week was China reporting no new domestic Covid-19 cases for two days, although the number of imported cases increased. The economy is continuing to re-open, with Volvo stating that its factories and dealerships are now operating at pre-shutdown levels – its European operations (in line with all major carmakers) have been shuttered.


Source: All information is from Bloomberg Finance LP as at Friday 20 March 2020 unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This information should not be considered a recommendation to invest in a particular security or to buy or sell any security shown. It is not known whether the securities shown will be profitable in the future.