Monday, March 2, 2020

US Times: US Stocks Record Worst Week Since 2008 Crisis

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What’s happening: US stocks tumbled on Friday to end the worst week for Wall Street since the 2008 financial crisis, amid escalating coronavirus worries.

What happened: The last week ended on a terrible note for the US equity market, which wiped off more than $3 trillion in market value from American stocks. The market also delivered the fastest correction in history last week, with the S&P 500 taking merely six sessions to record a decline of more than 10% from its peak level.

Why the markets plunged: Stocks were hit last week by fears of the coronavirus spreading outside the Chinese borders. Investors worried about the dent this would cause in corporate profits and global economic growth. Stocks traded in negative territory for almost the entire day on Friday, although the Nasdaq 100 did make a meagre attempt to deliver some gains.

The Dow was down more than 1,000 points at one stage during Friday’s trading, but cut off losses in the latter part of the session. This was due to support coming from expectations that the Federal Reserve would step in to curb the market selloff and lift investor sentiment.

The Dow Jones lost 1.4% to settle at 25,409.36 on Friday. The S&P 500 fell 0.8% on Friday to added to the 13% loss that the index recorded after hitting a record high on February 19. The Nasdaq 100 rose less than a point to close at 8,567.37.

Why it matters: Desperate for hope, investors in US stocks took solace in the Fed Chairman’s comments that the central bank was “closely monitoring” the coronavirus outbreak. The comments were viewed with optimism of the Fed reducing rates at its March meeting in order to drive the economy. Some investors are hopeful of the Fed taking action before the March meeting.

For the week, the Dow tumbled 12.4%, while the S&P 500 receded 11.5% and the Nasdaq 100 lost 10.5%.

Energy, financials and materials were the worst performing sectors for the week. Shares of American Airlines posted the steepest decline for the week, tumbling 31.5%, while big banks like Citi and Bank of America plummeted 17% last week. Gold, which was in huge demand last week, also declined on Friday with prices falling 3.7% to settle at $1,584 an ounce. Oil futures continued their downward movement on Friday, with WTI crude dipping 4% to $45.21, settling at its lowest level in four years. The Vix index, a measure of expected volatility in US stocks, climbed to 49, its highest recording since 2009, before settling at 40 by the end of the day.

On the economic data front, US consumer spending rose 0.2% in February. The Chicago PMI rose to 49.0 in February, versus January’s reading of 42.9. The country’s trade deficit in goods shrank 4.6% in January, while consumer sentiment index climbed to 100.0 in February.

What to watch: The sharp decline in US stocks could take a U-turn today, as traders look for attractive entry points. US stock futures are also pointing to a higher open. The market will look out for any comments by the Fed related to a possible rate cut to boost the economy. Any news of the virus slowing its spread will also support the markets.

The IHS Markit manufacturing PMI, ISM manufacturing PMI and construction spending are scheduled to be released today. All reports are considered as important indicators of economic growth. The manufacturing PMI is expected to fall to 50.8 in February, from 51.5 in January. The ISM manufacturing PMI is likely to decline to 50.4 in February, after having climbed to 50.9 in January. Construction spending is projected to rise 0.7% in February, versus a 0.2% decline in January.

The Markets Today

     

Crude oil is likely to be in focus today, with US benchmark prices delivering their biggest weekly decline in over 11 years, amid coronavirus fears.

Context: WTI crude oil tumbled more than 16% last week as more countries reported infections and the death toll grew. The continued rise in confirmed cases and the spread of the coronavirus to other parts of the world would make a dent in crude oil demand. The front-month contract was down more than 16% for the week, while being down around 13% on a monthly basis.

Details: Coronavirus is spreading rapidly around the world with more countries confirming their first case. This has put pressure on the OPEC (Organization of the Petroleum Exporting Countries) and their allies to discuss possible production cuts to curtail the downturn in prices. The OPEC is scheduled to meet this week. WTI crude for April delivery tumbled around 5%, or $2.33, to settle at $44.76 per barrel on the New York Mercantile Exchange, while April Brent crude lost 3.2% to settle at $50.52 a barrel on Friday.

Coronavirus has claimed more than 3,000 lives so far and the WHO has raised its risk alert level to “very high.” South Korea reported 476 new cases, while the number of cases in Italy climbed to 1,694. The number of deaths in Iran rose by 11 to 54. China confirmed 202 new infections and 42 new deaths on Monday.

Why it matters: After declining more than 20% since the beginning of the year, crude oil prices rose a little during the Asian session today. Investors are shifting their attention from worries of a slowdown in demand to the OPEC+ meeting scheduled for Thursday and Friday. During the Asian session, crude oil was trading 3.6% higher at $46.39.

What to watch: The OPEC+ is scheduled to meet later this week and investors are looking forward to announcements of additional production cuts in the second quarter. The earlier proposal was for an output reduction of 600,000 barrels per day. Investors are hoping for production cuts as they expect a global slowdown to continue to reduce oil demand and prices.

Other Markets: Most European indices closed lower on Friday, with the FTSE 100, DAX 30 and French 40 down 3.18%, 3.86% and 3.38%, respectively.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Mexico’s business confidence and manufacturing PMI, Brazil’s manufacturing PMI and balance of trade, Canada’s manufacturing PMI as well as the US manufacturing PMI, ISM manufacturing PMI and construction spending.