LONDON (Reuters) – How a lot injury has the coronavirus and the oil value collapse inflicted on global monetary markets this yr? Put merely, it has most likely been essentially the most harmful sell-off because the Great Depression.
FILE PHOTO: An empty road is seen close to Wall road in the course of the outbreak of the coronavirus illness (COVID-19) in Manhattan, New York City, U.S., March 27, 2020. REUTERS/Jeenah Moon
The numbers have been staggering. $12 trillion has been wiped of world inventory markets .MIWD00000PUS, oil has slumped 60% as Saudi Arabia and Russia have began a value conflict and rising markets like Brazil, Mexico and South Africa have seen their currencies plummet greater than 20%.
Volatility and company borrowing market stress has spiked on worries that complete sectors may go bust, airways .dMIWO0AL00PUS have had half their worth vaporized, whereas cratering economies danger a brand new wave of presidency debt crises.
“It has been like a train wreck,” Chris Dyer, Director of Global Equity at Eaton Vance, mentioned. “You could see it coming and coming and coming, but you just couldn’t stop it happening.”
That carnage has seen 22% and 20% slumps for Wall Street’s Dow Jones .DJI and S&P 500 .SPX, over 23% for MSCI 49-country world index .MIWD00000PUS and 26% for London’s internationally uncovered FTSE .FTSE.
For reference, the document quarterly drop for Wall Street was 40% in 1932 within the midst of the Great Depression. The truth that the S&P and Dow had been at document highs again in mid February has made the crash this time appear extra brutal.
GRAPHIC: World shares vs. COVID-19 confirmed circumstances – right here
Stocks in China, the place the virus hit first, have faired comparatively effectively as compared with solely an 11% drop in greenback phrases .CSI300, however the impression on different main rising markets has been devastating as their most important commodity markets, and currencies, have additionally collapsed.
Russian shares, which topped the tables final yr, have been routed 40% in greenback phrases. South Africa, which was stripped of its final funding grade credit standing on Friday, has fallen by the identical share, although Brazil has been the worst, plunging 50%.
A big a part of that is right down to some wild FX market strikes. All three of these nations have seen their currencies lose over 20% this yr, which additionally ties in to the commodity market carnage.
GRAPHIC: Currencies because the begin of the yr – right here
Brent crude oil has fallen by 65% within the quarter to simply $25 a barrel LCOc1. This was not solely due to the coronavirus disaster, but additionally the value conflict between Saudi Arabia and Russia, which is placing their public funds in danger.
Industrial metals like copper </MCU3=LX>, aluminium </MAL3=LX> and metal have all dropped 15-22% and a few agricultural staples like espresso LRCc2 and sugar SBc1 are down 17% and 10%.
“These are truly historical moments in the history of financial markets. 2020 will go alongside 1929, 1987 and 2008 in the text books of financial market panics,” Deutsche Bank Strategist, Jim Reid, mentioned.
GRAPHIC: Coronavirus crashes world markets – right here
GIVE ME SHELTER
So are there any locations to shelter? Yes, however not many.
Sit-on-your-sofa-suited shares like Netflix (NFLX.O) and Amazon (AMZN.O) have risen 14.5% and 6.5% respectively and a few specialist medical tools corporations have surged.
Ultra-safe U.S. authorities bonds have returned 12% because the Federal Reserve reduce U.S. rates of interest to successfully zero, main a cost of round 62 rate of interest cuts globally.
The greenback has rocketed towards rising market currencies. It had additionally shot up towards the majors too, however has eased again over the past two weeks and can finish the quarter solely three% up towards these larger currencies. USD=
This has left the Japanese yen, the opposite conventional FX safe-haven, with solely a zero.5% achieve JPY=. The Swiss franc is down towards the greenback, though it has climbed steeply towards the euro and lots of different currencies. EURCHF=
Will April carry a lot aid? JPMorgan reckons the coronavirus could have pushed the world financial system right into a 12% contraction in Q1 and with pandemic nonetheless spreading quickly and retaining massive elements of the global financial system shuttered it’s unlikely to get a lot simpler in Q2.
The cavalry has arrived although. G20 governments have promised a $5 trillion revival effort, main central banks have reduce charges and restarted asset purchases. Markets bounced massive final week till Friday got here and should still finish Q1 on a relative excessive.
Stephane Monier, Chief Investment Officer of Lombard Odier, is seeking to see whether or not an infection charges in Europe and elsewhere peak as they did in Asia. If they do, markets may see a V-shaped 30% restoration, though if they don’t and circumstances soar in Asia once more as lockdowns are lifted, it might be akin to a “war” state of affairs which might impression the financial system for 1-1/2 years.
“Our expectation is for a very volatile second quarter,” Monier mentioned. “It is important to keep in liquid, high-quality assets.”
GRAPHIC: BBB company bond spreads explode – right here
Reporting by Marc Jones. Editing by Jane Merriman