Thursday, March 12, 2020

Bears Roused as WHO Declares COVID-19 a Pandemic


What’s happening: US stocks headed south once again on Wednesday, with high volatility through the trading day. The final push was given by the World Health Organization officially declaring COVID-19 as a pandemic.

What happened: Trading sessions have been characterised by heightened activity over the past few weeks. Traders are on high alert and are quick to respond to every important announcement and news report.

After a rollercoaster session on Wednesday, US stocks were pushed into the so-called bear territory (defined as a decline of at least 20% from latest peak levels) for the first time in over a decade. The sell-off was triggered by news of the WHO designating coronavirus as a pandemic.

Several factors are in play and traders are actively seeking attractive opportunities amid the high volatility.

Factors impacting markets: There is significant uncertainty surrounding the US taking adequate steps to prevent the economy from slipping into a recession. President Donald Trump recommended a cut in payroll tax on Tuesday. However, the timing of its implementation is still unclear. Markets were disappointed with the White House not releasing further details of fiscal stimulus.

Meanwhile, President Trump announced the suspension of travel from European countries to the US. The suspension is to begin Friday midnight and continue for a month.

Central banks of various countries have announced rate cuts to lessen the coronavirus impact on their domestic economies. The Bank of England was the latest to do so, announcing a rate cut of 50 basis points to 0.25%. The US Federal Reserve had also lowered its benchmark rate by half a point in an emergency move. Markets expect the Fed to announce another reduction at its meeting next week. The European Central Bank is scheduled to announce its policy decision today and markets are hoping for some strong fiscal measures from the bank, apart from a rate cut. The current ECB rate is already in the negative territory and the lowest on record.

The virus, which has affected over 114 countries and claimed more than 4,000 lives globally, has been declared as a pandemic by the WHO. This is the first time the WHO has designated an outbreak as a pandemic since the H1N1 swine flu in 2009. WHO Director General Tedros Adhanom Ghebreyesus lifted the health emergency warning to the highest level and urged all countries to take strict measures to stop the virus from spreading.

Shares in the travel sector have been the worst hit, with Delta Air Lines, JetBlue Airways and United Airlines losing at least 6%. Shares of Norwegian Cruise Line tumbled 26% on Wednesday. Banking stocks also moved lower, with Citigroup, Goldman Sachs and Morgan Stanley losing more than 6%.

Stocks closed the day in bear territory, with the Dow shedding 1,465 points to close at 23,553. The S&P 500 fell 4.89% to 2,741, with the Nasdaq 100 plunged 4.7% to settle at 7,952.

In economic news, US consumer prices rose 0.1% in February, while the budget deficit expanded to an all-time high.

What to watch: Investors are keen for any positive announcement related to the curtailment of coronavirus and from the US President regarding additional fiscal measures to support the world’s largest economy. Shorters and CFD traders are very active, as the losing streak in US stocks is expected to continue today, with stock futures pointing towards a lower open.

Economic reports on initial jobless claims and producer prices are scheduled for release later today and could contribute to market volatility. The producer price index, which rose 0.5% in January, is expected to decline by 0.1% in February.

The Markets Today


WTI crude oil will be in focus today, as UAE joins the battle between Saudi Arabia and Russia following the collapse of the OPEC+ deal on Friday.

Context: The OPEC+ (Organization of the Petroleum Exporting Countries and their allies) had been trying to strike a deal among the group’s nations to reduce production to ease oversupply of oil amid declining demand. The nations have instead chosen to begin a price war and increase capacity.

WTI crude for April delivery declined 5.4% to trade at $31.20 per barrel on the New York Mercantile Exchange, while Brent crude futures tumbled 5.5% to $33.82 per barrel. Crude oil plunged during the Asian session as UAE announced plans to join the oil price war raging between Saudi Arabia and Russia.

Details: The oil-producing majors are now in a full-fledged battle to grab market share by increasing supply.

The UAE's largest producer, Abu Dhabi National Oil, announced that it can increase its supply from about 3 million bpd (barrels per day) to more than 4 million bpd by April. The state-owned oil company also said it was gearing up to increase its capacity to 5 million bpd.

Saudi Arabia's plans to cut oil prices and increase supply has pressured other OPEC+ nations to follow suit. Saudi Aramco, Saudi Arabia’s largest oil producer, is planning on pumping 12.3 million bpd into the market, up from 9.68 million bpd in February.

Meanwhile, the EIA (Energy Information Administration) reported a rise of 7.7 million barrels in America’s crude stockpiles.

The decline in oil prices was also triggered by US banning travel from European countries. President Donald Trump announced travel restrictions on 26 European countries, except the UK, to limit the spread of coronavirus. The restrictions will take effect from Friday midnight.

Why it matters: The price war among the OPEC nations has already brought oil prices down from above $60 per barrel in January to below $35 per barrel in March. Global demand for oil has been hit by the coronavirus outbreak and is projected to contract even further. Standard Chartered reduced its oil price estimates for 2020 to average $32 per barrel.

What to watch: Markets will be keeping a close eye on further announcements from oil-producing countries regarding increased capacity. Investors are expecting a huge surge in supply combined with a historic slump in demand for oil.

Other Market: Most European indices were trading higher at 10:30am GMT, with the FTSE 100, German 30 and French 40 all gaining close to 6% each.

Support & Resistances
for Today


market snapshot


Futures at 0400 (GMT)

News shaping
the markets today


What else to watch today


South Africa’s manufacturing production, India's industrial production and consumer price inflation as well as changes in the US natural gas inventories.