Tuesday, March 17, 2020

Asia Times: S&P500 drops the most since October 1987; VIX approaches all-time high

Tags
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • Bank of Japan
  • Federal Reserve

03172020a

Market Recap: S&P500 drops the most since October 1987; VIX approaches all-time high

US stocks slumped on Monday after investors’ worries were fuelled by actions from the US government and the Fed. The Fed cut rates by 100bps to near zero and increased asset purchases to help stabilise liquidity in financial markets in an emergency meeting on Sunday. The second emergency rate cut this year rattled investors before the US markets were even open, pushing futures tracking major indices to hit the 5% limit down circuit breaker. ETFs tracking the S&P500 were as much as 9% lower before the open of the US equities market.

Later into the day, US President Donald Trump added to investor caution by discouraging people in the US from gathering in large groups. Trump also that signalled the US may be headed for a recession. The DJIA, S&P500 and Nasdaq fell 12.93%, 11.98% and 12.32%, essentially wiping out gains since 2016. The fear gauge VIX surged 42.99% to 82.69, and looks to be closing in to the all-time high level of 89.53 made during the 2008 financial crisis. Rate sensitive stocks were hit the most in the S&P500, with the real estate sector in the index tumbling 16.55%, followed by the financial sector's decline of 13.99%.

Indexes Daily Change (%) Net Change Closing Price
Dow Jones -12.93% -2,997.10 20,188.52
S&P500 -11.98% -324.89 2,386.13
Nasdaq -12.32% -970.28 6,904.59
*Source: Bloomberg

The yen dominated demand among major currencies, along with euros and Swiss francs as a result of escalating fear and central bank actions across the world. The US dollar fell after the New York State Empire Manufacturing Index sharply fell past expectations of 3.0 to -21.5, the lowest level since 2009. Oil-related currencies lagged the most, as the outlook for oil sours as the airline industry continues to be pressured by the coronavirus.

Following the Fed's emergency rate move, the BoJ shifted its own meeting forward to Monday and the RBA said that it would be making an announcement on Thursday to introduce its own stimulus package. The RBNZ cut its rate by 75bps to 0.25% and signalled that quantitative easing would be the next step for additional stimulus. The BoK slashed its rates on Monday as well, cutting 50bps to put its key interest rate at a record low of 0.75%. The BoJ didn't cut its key rate however, but opted to double its ETF and REIT target purchases for 2020. The Japanese central bank also introduced a new loan program to make sure low-cost financing was available for companies that needed it.

03172020b

Safe haven assets rose with the exception of gold, likely as cash and cash equivalent assets were king compared to the precious metal. Benchmark 10-year yields sharply fell again, retreating 24.2bps to 0.72%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold -1.03% -15.73 1,514.10
Silver -12.29% -1.81 11.81
JPY +1.66% +1.79 105.83
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -13.0 0.36%
10-Year -24.2 0.72%
30-Year -24.5 1.28%
*Source: Bloomberg

Brent fell below US$30 per barrel to as low as US$29.52 a barrel during trading on Monday, as oil prices were dampened by the more apparent suffering in the airline industry and signals from both Saudi Arabia and Russia that their ongoing price war will not end anytime soon. Multiple airlines across the world has cut capacity and reduced routes to only essential ones amid the coronavirus outbreak. Major US airlines sought a bailout from the US government. Qantas Airways said that it will be stopping 90% of its international flights and 60% of its domestic capacity until at least May. SAS airlines said that it would be temporarily cutting 90% of its workforce and reducing routes to only essential ones.

Oil Futures Daily Change (%) Net Change Closing Price
Brent Crude -11.23% -3.80 30.05
WTI Crude -9.55% -3.03 28.70
*Source: Bloomberg

Asia looks set for another day of red on Tuesday, although the ASX200 was roughly 2% higher in early hours of Tuesday's trading session after the New Zealand government unveiled a fiscal stimulus package that was worth roughly 4% of its GDP. US futures were higher on Tuesday morning as well, but nowhere near levels needed to recover from Monday's selloff. Expect more stimulus packages from governments and central banks around the world in an attempt to limit the social and economic impact of the fast-spreading virus in the week ahead.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei Index -0.22% -36.99 16,964.03 8:54:40 AM
KOSPI Index -1.69% -28.98 1,685.88 9:14:40 AM
ASX200 Index +2.69% +134.68 5,136.70 9:14:35 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +1.80% +365.00 20,605.00 8:26:44 AM
S&P500 Futures +1.59% +38.25 2,440.50 8:26:44 AM
Nasdaq Futures +2.10% +147.50 7,182.00 8:26:39 AM
*Source: Bloomberg

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

  • UK Jan Unemployment Rate (ILO) (5.30pm)
  • Germany Mar Expectations Survey (ZEW) (6pm)
  • US Feb Retail Sales (8.30pm)
  • US Feb Industrial Production (9.15pm)