LONDON (Reuters) - What’s the damage? Depending on which index you look at, equities have shed between $6 trillion and nearly $7 trillion since last Friday.
And whatever happened to buy the dip? If anyone hoped bargain hunters would come crawling out after six straight days of hectic selling, they are disappointed – if anything it looks worse.
European shares opened some 4% lower, Wall street futures are down 0.6% and Japan’s Nikkei was also off 4%. It’s the worst week for world stocks since those terrible days of 2008 as the coronavirus is now widely expected to trigger a global recession.
What’s more, even gold is taking a hit now – analysts reckon it’s bearing the brunt of liquidations caused by margin calls after the huge slide in stock markets.
Other safe-haven assets remain well bid though with the Japanese yen up 0.6% and bond markets going nuts with U.S. 10 year yields down 10 basis points and approaching 1%.
Essentially what we are seeing is a cry for help to stave off a recession. U.S. money markets are pricing in three rate cuts in the next 12 months starting next month.
In the euro zone a cut is priced for September even though Mme. Lagarde appeared to rule that out, saying the situation was not yet having a lasting impact on inflation. But she will be paying attention to the five year forwards, where expectations have dropped to five-month lows.
There are exceptions though – Italian bond yields are up 15 basis points and the premium over Germany is around 180 bps.
The dollar is set for its worst week in three years against the yen as rate cut expectations build, and currencies are getting a right walloping across Asia and emerging markets: The Aussie dollar is at a new 11-year low against the dollar, the kiwi is down 1%.
Flash inflation figures in the euro zone as well as U.S. personal consumption data will be released. Some Fed policymakers will also be on the wire.
Trouble is brewing in emerging markets too with no relief form the dollar’s decline this week, possibly as the jump in the yen and euro forces an unwinding of carry trades – the Indonesian rupiah’s fall forced central bank intervention – a picture that may be repeated across many countries before the day is out.
The Turkish lira is on the move as well, falling to 17 month lows after the killing in Syria of 33 Turkish soldiers. Authorities banned short selling of stocks after the Istanbul bourse opened 10% lower.
It’s now down 5% — far worse than other regional indexes. Anything oriented to growth – copper or palladium or oil — is having a torrid time. Aluminium for example is at the lowest in more than three years and copper stockpiles are building in Chinese warehouses.
Keep an eye on those volatility gauges. The extended period of bullish equity markets and currency calm has built up large short positions in the low-volatility euro which were used to fund trades in higher-yielding markets – euro dollar volatility is the highest in over a year now, meaning those who sold short vol positions will be getting nervous.
Other volatility gauges in the U.S. and in Europe have surged and oil prices are also in freefall. It’s nevertheless a big earnings day in Europe but frankly, who cares?
Trading on fundamentals isn’t exactly the name of the game today. Uncertainty is high, and that’s illustrated by British Airways-owner IAG which said it was unable to give profit guidance for 2020 because of the virus knocking travel demand.
Europe’s travel and leisure index is down 14.5% so far this year and it’s likely not the end of it as one can see with EasyJet. The budget airline’s shares were down almost 5% after it warned about a "significant" softening of demand.
Still in the sector, Amadeus' CEO confirmed the outbreak will have an impact on the travel industry and the group's business this year. Good results, such as from BASF, might help some companies weather the storm better than their peers.
On the other hand, Munich Re and its 9% profit drop from natural catastrophes may not help much. Its shares are down 7%. On top of that, resinsurers might have a mighty bill to pay for the coronavirus epidemic.
Rolls-Royce’s 2019 operating loss of 852 million pounds may also not go down very well despite engine deliveries and a good after-market performance.
The spotlight will also be on Biotechnology company Novacyt which announced deals for its "Primerdesign" product aimed at testing for the coronavirus.
Another way to fend off sellers is with a increased pay-out, like Austrian lender Erste Group which said it would propose a dividend increase after reporting a flat operating result for its fourth quarter.
Emerging market stocks and currencies suffered hefty falls with stocks on track for a more than 7% tumble over the week, their worst such performance in over a year.
Turkey’s lira slipped to a 17-month low and is on track for a nearly 5% decline since the start of the year, as data showing the economy rebounded sharply in Q4 with a better-than-expected growth rate of 6% did little to abate concerns.
China mainland shares, South Korea and Indonesia all dropped around 3.5%, while Russian stocks were down more than 5%.
Announcements from Seoul that it would launch an extra budget in coming days to mitigate the damage to the economy from the virus, which would be more than the nearly $10 billion spent in 2015 over MERS, fail to arrest the declines.
Currencies painted an equally bleak picture with the emerging market index hitting a fresh four month low. Indonesia’s rupiah dropped nearly 2% against a tepid dollar, Russia’s rouble was off 1% as oil prices remained under pressure, Brazil’s real was down 0.8% and South Africa’s rand 0.7%, while China’s yuan trod water, trading just above 7 to the dollar.
— A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own —