So will global markets pick up this week after last week’s mass sell-off which verged on panic at times?
Over last week US shares fell 15%, Eurozone shares lost a small 2.04%, Japanese shares shed 10.8%, Chinese shares dropped 6.2% and Australian shares fell 13.1%.
From their recent highs to their recent lows US shares are down 32%, Eurozone shares have fallen 38%, Japanese shares have lost 31%, Chinese shares have fallen 15% and Australian shares are off 33%.
The AMP’s Chief Economist, Dr. Shane Oliver pointed out in his weekend note that while the unfolding human crisis is horrible and the flow on to economies makes it all seem increasingly bleak “it is worth continuing to bear in mind some positives from an economic and investment perspective.”
First, he said, after 30% plus fall shares are now cheap, particularly against ultra-low bond yields & interest rates. Forward P/Es are now well below long term averages even allowing for a fall in earnings.
Second, negative investor sentiment is extreme – with the VIX (or fear index) having gone beyond levels seen in the GFC – which is positive from a contrarian point of view.
And third, the oil price collapse to an 18 year low is good news for motorists.
But will that message be heard on Wall Street?
Wall Street wrapped up its worst week since October 2008 on Friday, with the Dow and S&P 500 sliding more than 4% as tough restrictions by New York and California to try to contain the spread of the coronavirus fuelled worries about damage to the economy.
Several other US states also announced clampdowns as well. An estimated one in four Americans now face some sort of restrictions on their ability or move around or leave home.
The big question is whether the increasing dysfunction seen in markets – especially bonds of all types – will fade or will continue and terrify companies, investors, regulators, and governments.
The latter was highlighted by a blow out in corporate borrowing rates and a surge in government bond yields earlier in the week (as fund managers facing redemptions sold their liquid previously strong positions) and increasing difficulty in accessing money market funding.
Last week saw this has been matched by ever more aggressive government support measures (especially from the Fed and central banks in Australia, UK, NZ, Europe, as well as more and more national and state governments) and central bank moves to boost liquidity and by the end of the week the latter was helping with bond yields falling sharply.
The yield on the key global bond, the US 10-year security, fell from 1.15% to 0.87% on Friday, a huge move even in these times.
Commodity prices remained under pressure with oil down another 29% and even gold down, although iron ore had held up well until a 4% slide on Friday.
Despite a decline in bond yields later in the week, for the week as a whole, they were mixed with yields down in the US and Italy but up in Germany, Japan, and Australia.
Safe-haven demand saw the US dollar surge and this saw the $A plunge below $US0.56 at one point to levels not seen since 2003. But on Friday the Aussie surged through a 3 cent range – from 56.65 to 59.85 US cents – it ended at 57.85.
The benchmark S&P 500 finished down 4.4% to close the week down 15%, its worst week since the 2008 financial crisis.
The Dow lost more than 900 points on Friday or 4.5%, to end the week down 17.3% while Nasdaq shed 12.4% over the week and 3.8% on Friday
