Friday, February 28, 2020

S&P500 on track to reach December 2018’s level of losses; expectations for the Fed to cut rates surge

  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • US Durable Goods Orders


Market Recap: S&P500 on track to reach December 2018’s level of losses; expectations for the Fed to cut rates surge

US stocks slid again on Thursday, with the three major indices in the US plummeting more than 4% over fears for a global pandemic. The fall came after news that California is monitoring 8,400 people who traveled from Asia for possible infection of the coronavirus. Goldman Sachs said that it sees zero profit growth for US companies as a result of pressure from the coronavirus outbreak, while JPMorgan cut their profit estimates for the S&P500. PayPal joined Microsoft and Apple in saying that the its upcoming quarterly revenue will be affected by the virus.

The S&P500 has lost 12.03% since February 19th. For comparison, the S&P500 dropped roughly 16% and 15% before the market saw a rebound in July 2011 and December 2018 respectively. The CBOE Volatility Index (VIX), the market's proxy as a fear gauge, surged 42.09% to 39.16.

Indexes Change (%) Net Change Closing Price
Dow Jones -4.42% -1,190.95 25,766.64
S&P500 -4.42% -137.63 2,978.76
Nasdaq -4.61% -414.30 8,566.48
*Source: Bloomberg

In the forex market, the dollar faced pressure from speculation for a Fed rate cut in a bid to stimulate the economy amid the coronavirus outbreak. Futures implied probabilities for a rate cut climbed to 88.4% as of Thursday morning, from just 35% two days ago and 8.1% a week ago. Most major currencies aside from sterling and the loonie gained against the dollar. The Dollar Index fell 0.49% to 98.51.

The greenback fell despite better-than-expected durable goods orders (headline durable goods orders: -0.2% (A) vs -1.4% (E), durables ex transportation: +0.9% (A) vs +0.2% (E)), signalling that pricing in the financial markets is facing a downside correction after being overly optimistic on the potential economic impact of the coronavirus outbreak.

Meanwhile, the sterling fell after British Prime Minister Boris Johnson told the EU that the UK will not continue trade talks after June if the bloc does not clearly state that the UK will be able to get a Canada-style free trade agreement with them. The differing ideals on the future relationship of the two parties are likely to cause further tension as they proceed with trade negotiations. The pound fell 0.14% against the dollar and 1.22% against the euro on Thursday.


Safe haven assets extended gains, with gold continuing its recovery to make a slight gain of 0.01% from last week. The yen has rose three out of the last four days against the dollar. US Treasuries surged, pulling benchmark 10-year yields 7.6bps lower to 1.26%.

Safe Haven Assets Change (%) Net Change Closing Price
Gold +0.25% +4.05 1,645.01
Silver -0.81% -0.15 17.62
JPY +0.76% +0.84 109.59
*Source: Bloomberg
US Treasury yields Change (bps) Yield (%)
2-Year -10.3 1.06%
10-Year -7.6 1.26%
30-Year -6.6 1.76%
*Source: Bloomberg

Oil futures tumbled yet again, with both Brent and WTI crude oil futures already losing more than 10% over the week. Both Brent and WTI futures look set to make a sixth straight day of losses, with WTI already down 1.30%, or US$0.61 to US$46.48 per barrel as of 9am (GMT +8).

Oil Futures Change (%) Net Change Closing Price
Brent Crude -2.34% -1.25 52.18
WTI Crude -3.37% -1.64 47.09
*Source: Bloomberg

Stocks around the globe show no sign of recovery as the number of Covid-19 cases across the world continue to climb. Cases of the coronavirus in South Korea reached 2,022 after confirming 256 more cases on Thursday morning. Asian stocks were lower again on Friday morning, with both the Nikkei and ASX200 losing more than 3% before 9am (GMT +8). The KOSPI was 1.87% lower by 8.54am (GMT +8).

Asia Change (%) Net Change Last Price  
Nikkei Index -3.03% -665.31 21,282.92  
KOSPI Index -1.87% -38.49 2,016.40  
ASX200 Index -3.26% -217.35 6,440.50  
*Source: Bloomberg

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

  • Germany Feb Unemployment Rate / Change (4.55pm)
  • Eurozone Feb Inflation Rate (CPI) (P) (6pm)
  • Germany Feb Inflation Rate (CPI) (P) (9pm)
  • US Jan Personal Income / Spending Report (9.30pm)
  • Canada Q4 GDP (9.30pm)