Daily market review

United States

The global flight to quality drove equities dramatically lower Monday with plunging oil prices adding to the turmoil and interest rates dropping again on recession fear driven by the spreading coronavirus. Heavy selling forced a delayed open as circuit-breakers were triggered, and losses extended afterward. The Dow industrials fell 7.8 percent, the S&P 500 lost 7.6 percent, and the NASDAQ fell 7.3 percent.

All sectors fell, with energy under extraordinary pressure along with financials, while Treasuries saw an incredible rally that took US 10-year yields toward 0.5 percent, down about 20 basis points from Friday. Expectations rose for more emergency action from the Federal Reserve and other central banks to steady the markets, and the Fed did announce it was ramping up its repos to add liquidity to the financial system. But investors lacked confidence that the authorities could do much to control the spreading virus or its fallout.

Crude oil prices dropped more than 20 percent, their biggest one-day decline since 1991, after the Saudis and Russia said they would flood the market with supply; the two biggest suppliers and other exporters failed to agree on a pact to limit supplies.

Consumer staples, utilities, and real estate outperformed but still suffered big losses, while energy, financials, industrials, and materials got whacked.

Among companies in focus, Boeing was off 13 percent on the bloodbath in airline stocks, and reports the Federal Aviation Administration will order more changes in the 737 Max planes that will delay their return again. Royal Caribbean, the cruise operator, fell 26 percent in the ongoing industry selloff, and after US health officials warned against travel for the elderly and others.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil dropped US$10.75 to US$34.50, while gold rose 10 cents to US$1,675.00. The US dollar fell against most major currencies. The US Treasury 30-year bond yield plunged 26 basis points to 1.03 percent while the 10-year note yield fell 19 basis points to 0.57 percent.


Flight-to-quality selling accelerated Monday on virus fears with plunging oil prices adding to the market's woes and recession expectations. The Europe-wide STOXX 600 dropped 7.4 percent, the German DAX fell 7.9 percent, the French CAC lost 8.4 percent, and the UK FTSE-100 was off 7.7 percent.

The Saudi and Russian decision to launch a price war, which sent crude oil prices plummeting, added to the turmoil, with energy stocks leading the selloff, along with banks as interest rates dropped. Oil supermajor British Petroleum dropped 19.5 percent and Royal Dutch Shell dropped 18 percent as crude oil prices dropped about 24 percent on the day. Among financials, Deutsche Bank was off 13 percent and Reserve Bank of Scotland was off 10 percent, representative of the sector.

Retail sector stocks held up best, but still saw losses of more than 4 percent. Health care, food & beverage, and personal & household goods also did better than the market, while oil & gas, banks, basic resources, autos & parts, insurance, and construction & materials suffered the most.

In economic news, German goods producers saw output rebound sharply at the start of 2020. Following a significantly smaller revised 2.2 percent monthly slump in December, January posted a much steeper than expected jump of 3.0 percent. Annual growth in output picked up from minus 5.3 percent to minus 1.4 percent suggesting that the first quarter (virus effects aside) might see a welcome return to positive growth.

Asia Pacific

Major Asian markets capitulated Monday in response to the sharp plunge in global oil prices after OPEC negotiations with Russia broke down over production targets. Also weighing on regional investor sentiment, Chinese data published over the weekend showed a sharp drop in trade flows for the first two months of the year, while revised GDP data published Monday confirmed that the Japanese economy was already in a weak position ahead of the coronavirus outbreak.

Investor concerns about the outbreak remain elevated despite some potentially encouraging developments on containment efforts in the region. Chinese state media reported Sunday that authorities in Wuhan had closed most of the temporary hospitals installed to deal with the initial surge in cases, while South Korea Prime Minister Chung She-kyun was reported to have expressed hope that a "turning point" will be reached in the near future. The significant extension of quarantine restrictions in Italy announced over the weekend and the continued increase in the number of cases elsewhere, however, have kept investor focused on the ongoing economic disruption caused by the outbreak.

Australia's All Ordinaries index was the hardest hit in the region Monday, closing down 7.4 percent. Shares of energy and other commodity companies were among those to sell off most aggressively, but major local banks also recorded heavy declines. The Australian dollar reached new multi-year lows against the US dollar and other major global currencies. Japan's Nikkei and Topix indices also fell sharply, down 5.1 percent and 5.6 percent respectively, with strong safe-haven demand pushing up the Japanese yen and weighing on shares of major Japanese exporters. The Shanghai Composite index fell 3.0 percent on the day, while Hong Kong's Hang Seng index closed down 4.2 percent.

Revised estimates show Japan's gross domestic product fell 1.8 percent on the quarter in the three months to December, slightly weaker than the preliminary estimate of a decline of 1.6 percent published last month and the consensus forecast for a drop of 1.7 percent. Compared with the initial estimates for this quarter, the revised estimates show a slightly smaller but still large fall in household consumption and private residential investment, and a significantly bigger fall in private non-residential investment. In annualized terms, GDP fell 7.1 percent in the quarter, also slightly weaker than the preliminary estimate of a drop of 6.3 percent.

Data published over the weekend showed that China's trade balance swung from a surplus of US$47.21 billion in December to a deficit of US$7.09 billion for January and February combined. Officials are now combining the trade data for the first two months of the year to remove distortions caused by the timing of lunar new year holidays, in line with other major activity data. Exports fell 17.2 percent on the year for January and February combined, weakening sharply from year-on-year growth of 7.9 percent in December, while imports fell 4.0 percent after increasing 16.5 percent previously. This slump in trade flows provides clear evidence of the disruption to economic activity associated with factory closures, transport restrictions, quarantine measures and other steps taken by Chinese authorities to counter the coronavirus outbreak.

Looking ahead*

On Tuesday in Asia/Pacific, Chinese CPI and PPI reports are due. In Europe, French and Italian industrial production plus Eurozone GDP figures are scheduled.

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