Friday, March 13, 2020

Asia Times: VIX spikes 40% to 75.47 as the US ends its longest bull run in history; get set for another day of high volatility

Tags
  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • European Central Bank

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Market Recap: VIX spikes 40% to 75.47 as the US ends its longest bull run in history; get set for another day of high volatility

US equities plummeted again following US President Donald Trump's national address on Wednesday. Investors likely viewed Trump's response to the virus as inadequate, skewing the economic outlook for the US towards the downside. Both the S&P500 and the Nasdaq followed the Dow into bear territory on Thursday, effectively ending the longest bull run in history. The S&P500 is now 26.74% lower from its all-time high after plunging 9.51% on Thursday. The index is now roughly at half of the losses the index suffered during the 2008 financial crisis (S&P500 fell as much as 47.74% from its peak over the course of the 2008 crisis).

Boeing dragged on the DJIA yet again, falling 18% for the second day in a row after the outlook for airlines soured when Trump announced travel restrictions for Europe. The aircraft maker has now lost roughly 50% of its market cap since February. In sector data, the energy sector lagged the most among S&P500 sectors, diving 12.30%. CBOE's volatility index, VIX, surged 40.02% on Thursday to 75.47. The fear gauge looks to be on track to hit its all-time high of 80.86, which was during the peak of the 2008 financial crisis.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -9.99% -2,352.60 21,200.62
S&P500 -9.51% -260.74 2,480.64
Nasdaq -9.43% -750.25 7,201.80
*Source: Bloomberg

The dollar gained against every other major currency on Thursday, as demand from both investors and businesses to cover liabilities drove the greenback. The Australian and New Zealand dollars were the biggest laggers in the basket of major currencies, probably as a result of an increasing likelihood of Australia's economy moving into recession.

The euro plunged in the hours following the ECB's monetary policy decision, to as low as 1.1056 despite a surprise move that saw its deposit rates unchanged. But the ECB met expectations on all its other monetary policy tools. Instead of a direct cut to its deposit rate, the governing council decided to cut its targeted longer-term refinancing operations to banks by 25bps in order to help SMEs. This will probably be true as more laxed regulations and lower costs for banks to borrow funds will likely create lower cost bank loans which SMEs are more dependent on as compared to bigger corporations. The central bank will also offer unlimited liquidity on a temporary basis through additional longer-term refinancing operations, likely in a bid to prevent any disruptions to the money market.

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Safe haven assets were mostly mixed on Thursday, with gold and yen both declining, likely as a result of profit taking to cover losses in the equities market as well as a shift away from the precious metal towards bonds. US Treasuries managed to eke out gains in its two-year and 10-year bonds, pushing 10-year yields lower by 6.5bps to 0.80%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -3.60% -58.89 1,576.15
Silver -5.57% -0.93 15.53
JPY -0.10% -0.10 104.64
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -3.9 0.48%
10-Year -6.5 0.80%
30-Year +4.8 1.44%
*Source: Bloomberg

Oil continues to suffer from extreme volatility amid the price war between Saudi Arabia and Russia. Brent has lost 27.68% since the start of the week as of 8.06am (GMT +8) and looks set to add more losses today. Brent and WTI crude futures were 1.44% and 1.27% lower on Friday morning as of 8.06am (GMT +8).

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -7.18% -2.57 33.22
WTI Crude -4.49% -1.48 31.50
*Source: Bloomberg

In Asia, equities look bent on tracking losses in the US. The Nikkei, KOSPI and ASX200 were all 7% lower in the early hours of the trading day. Futures tracking US major indices were down as well, signalling that there will likely be high volatility in the equities markets again today.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -7.61% -1,412.86 17,146.77 8:57:35 AM
KOSPI Index -7.01% -128.51 1,705.82 9:17:30 AM
ASX200 Index -7.29% -386.83 4,917.80 9:17:36 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -1.29% -271.00 20,661.00 9:10:31 AM
S&P500 Futures -1.11% -27.25 2,428.00 9:10:31 AM
Nasdaq Futures -1.71% -123.25 7,080.75 9:10:31 AM
*Source: Bloomberg

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

  • Germany Feb Inflation Rate (CPI) (3pm)
  • US Mar Consumer Sentiment Survey (U. of Mich) (P) (10pm)