Markets: global stocks in a perilous state as coronavirus fears rise
California has declared a state of emergency while a cruise ship lies in lockdown off the coast. India has shut schools in New Delhi for two million children while in Iran and Italy the authorities have shut down all schools and universities.
In London, HSBC evacuated many of its staff from the Canary Wharf tower building while consultancy firm, Deloitte, has ordered people to work from home as fears deepen over the spread of coronavirus.
Governments and the public health authorities are doing their best to work out what the best strategy is to contain this illness, a hideously complex decision to take between protecting the public’s health and doing the least damage to people’s livelihoods and wealth.
Pity, then, traders and investors trying to hedge their bets on frenzied stock markets right now. They are as in the dark about the impact of the spread of the virus – and the wider damage to corporate health – as the rest of us.
Which is why the US stock markets fell again today in early trading, with all the major indices dropping like flies as investors continue to sell out on fears. Only gold was the winner while yields on 10-year Treasury bonds fell again below 1% but remained slightly up on Tuesday’s low.
The Dow Jones Industrial Average, which has now seen two 1,000 points gains and one 800 loss over the last week, dropped another 2.6%. The S&P 500 was down by a similar amount, as was the Nasdaq Composite. That means they are all back in correction territory, more than 10% below their peak.
Already this year the Dow Jones Industrial Average of US companies has seen swings of 3% on more on five occasions. The last time such volatile trading occurred was in 2018, but even then there were only five such swings during the entire year.
Before then, you have to go back to 2011 to see such big movements.
And the stock markets look set to continue their roller coaster ride despite the Federal Reserve’s emergency decision to cut interest rates this week, a move which failed to dampen deepening fears of a global downturn, if not triggering recession in many countries.
Traders know that first quarter earnings are going to be hammered by the lockdown in so many countries while China is expected to report its first quarterly decline in growth in more than four decades.
Even the Volatility Index, VIX, otherwise knowns as the fear index, is not sure where to settle after last week’s dramatic spikes when it hit nearly 50 – a level not seen since the 2008 financial crash.
While the VIX, created by the Chicago Board of Options Exchange as an index based on the volatility of S&P 500 Index options, is now off those highs down to the early 30 levels, it was on the move up again today to register 36. As the index represents market expectations of the next 30 days, it’s usually a pretty good guide to the mood of investors. The usual range is between 18 and 35, so any spikes above these levels suggest that institutions are getting increasingly nervous about future growth.
The US falls followed on from equally miserable trading in the UK where the FTSE 100 Index dropped by nearly 2%, down for the first time this week. Share prices fell across the board after a litany of horrible news: the collapse of Flybe and pessimistic forecasts on world growth from the IMF, which is now predicting that 2020 will be the worst since 2008.
Compounding the misery, Goldman Sachs has warned that the country might be tipped into recession if the virus continues to impact on some of the UK’s most attractive but exposed sectors such as tourism and travel. Goldman predicts that the second quarter, from January to March, will see growth down to 0.2%. Deutsche Bank forecast growth being slashed to 0.5% for the year.
The picture was just as dark across Europe with some of the biggest share price falls being seen in France where the CAC-40 index was down over 2% with Germany’s DAX falling just under 2%.
We are all in this together.