Wednesday, February 26, 2020

S&P500 extends into its biggest slump since December 2018; dollar falls amid speculation for a Fed rate cut by the first half of the year

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks

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Market Recap: S&P500 extends into its biggest slump since December 2018; dollar falls amid speculation for a Fed rate cut by the first half of the year

US equities fell for the fourth session in a row, with all three major indices tumbling 2.5% for the second straight session. The S&P500 has lost 7.62% over the last four days, the biggest slump since December 2018. The energy sector led the S&P500 in losses again, followed closely by the materials sector. The fourth straight day of losses comes amid a warning from the US Centers for Disease Control and Prevention (CDC), asking Americans to start preparing for a possible spread of the coronavirus in the US as infections rise in Italy, South Korea and Iran.

Indexes Change (%) Net Change Closing Price
Dow Jones -3.15% -879.44 27,081.36
S&P500 -3.03% -97.68 3,128.21
Nasdaq -2.77% -255.67 8,965.61
*Source: Bloomberg

Most major currencies recovered against the dollar, although China-related currencies, the Australian and New Zealand dollar continued to fall on Tuesday. The greenback fell on Tuesday as investors speculate on a higher probability of a rate cut by the Fed to provide some insurance to the US economy. Fed Fund futures implied probabilities for a rate cut at the next FOMC monetary policy meeting jumped to 23.2% from 8.1% last Friday. The market is now pricing in a rate cut by the first half of the year.

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Gold fell sharply on Tuesday despite a likely reduction in risk appetite in the market. The sharp selloff is likely a price correction skewed to the downside as investors take profits off their positions. The yen gained 0.47% against the dollar, strengthening for the second day in a row. US Treasuries extended into a fourth session of gains, with benchmark 10-year yields retreating 1.8bps to 1.35%.

Safe Haven Assets Change (%) Net Change Closing Price
Gold -1.46% -24.24 1,635.14
Silver -3.40% -0.63 17.87
JPY +0.47% +0.52 110.20
*Source: Bloomberg
US Treasury yields Change (bps) Yield (%)
2-Year -2.3 1.22%
10-Year -1.8 1.35%
30-Year -0.9 1.83%
*Source: Bloomberg

Oil suffered a third day of selloff, with both Brent and WTI crude futures dropping more than 2% on Tuesday. But WTI crude oil futures is showing some sign of recovery early in Wednesday’s trading session, trading 0.62% higher at US$50.22 per barrel.

Oil Futures Change (%) Net Change Closing Price
Brent Crude -2.40% -1.35 54.95
WTI Crude -2.97% -1.53 49.90
*Source: Bloomberg

Stocks in Asia look set to track US losses on Wednesday morning as the number of infections outside of China continue to climb. Cases of Covid-19 infections in South Korea grew by another 169, bring the total number of cases in the country to 1,146. Italy's count of infections rose to 322, with its death toll reaching 10. Iran reported a total of 15 deaths, while multiple countries in the Middle East region started to report additional cases of the virus. The Nikkei and KOSPI started Wednesday's trading session 1.02% and 1.88% lower.

Asia Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -1.22% -276.49 22,328.92 8:45:05 AM
KOSPI Index -1.61% -33.84 2,069.77 9:05:10 AM
ASX200 Index -2.19% -150.10 6,716.50 9:05:05 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • US Feb 21 Mortgage Application (MBA) (8pm)
  • US Jan New Home Sales (11pm)