Weekly Market Wrap 24-28/FEB/2020

Marius Paun | London, UK | Senior dealer | Friday, 28th February 2020

It was a rather messy week for the world markets. In particular, the US equities lost more than 10% across the board and analysts are now increasing bets the Federal Reserve will be forced to step in and cut interest rates sooner rather than later. After being complacent since December last year, markets realised last week that coronavirus cannot be contained only in China. Hotspots are now South Korea, Iran, Japan and Italy.

The volatility index – VIX has spiked to 38.5 surpassing the 36.2 high of December 2018 when we saw the last significant selloff. President Donald Trump weighed in, trying to calm things down a bit, but on Friday afternoon there was still widespread panic. Will the Fed act, or at least express its intention, to ease sometimes next week, because a 10% drop can become a 20% drop (recession) pretty quickly and it is an election year folks?!

Meanwhile, China has announced that over 30% of small and medium companies have resumed normal production. The risk of disruptions to the supply chain remains elevated in the country and its closest neighbours, but there are also reports that new cases are beginning to drop slightly.

Back in the UK, Bank of England Governor Mark Carney commented on Sky News saying COVID-19 could mean an economic growth downgrade for Britain. Nonetheless, he acknowledged it is ‘still too early to tell how badly the UK will be affected’. Perhaps those disastrous Brexit predictions kept him in check this time before announcing another doomsday?

Elsewhere, UK officials said they will break off trade talks with the European Union if no ‘good progress’’ is made by June. At the same time though, Prime Minister Boris Johnson appeared to be ‘very optimistic’ about those trade talks. The carrot and the stick?

ECB President Christine Lagarde also expressed her views about coronavirus in the Financial Times saying they are monitoring the situation very closely but the ‘virus not yet at a stage requiring ECB response’. She added the ‘virus not yet having a lasting impact on inflation, we are not at a point where it could cause long-lasting shock’. Really? Is she serious? Or do we smell something cooking for a coordinated move among central bankers?

Even the Gold prices were not spared by the current pessimistic sentiment. The precious metal reached a 7 year high on Monday at $1689.3 only to tank to $1571.2 on Friday afternoon. It was hardly a safe haven for most of the week.

In the light of crude oil prices also nosediving deeper into a bear market, moving down to the lowest level, last seen in December 2018, OPEC+ members are reportedly discussing an addition output cut, of up to 1 million barrel per day. Will it work?