Market Overview

5 March 2020

The Story of a Bloody Week

Last week was marked by the biggest fall in the equity markets over the last decade. The panic in place was the consequence of the growing concerns about the possibility that the coronavirus could become a global pandemic with serious implications for economic growth. Despite the fact that China revealed encouraging data that reflected a decline in growth of the number of infected people, the virus has continued to spread to other countries - especially in South Korea, Iran and Italy.

As this news hit over the past weekend, it was already possible to expect a downward opening of the main world indices, and that was how this "bloody" week started. The week began on a strong fall and the feeling of great risk aversion led to an increased demand for more secure assets. Then, throughout the week, it was also possible to observe the continued feeling of risk aversion as more and more companies announced expectations of loss in profits over the coming months.

The removal of risky assets led the S&P 500 to fall by 11% over the period of five days, which was the biggest weekly decline since the financial crisis of 2008. This decline of seven consecutive days also marked its greatest slippage in more than three years. The Dow Jones also had a weekly decrease of 12%, having dropped almost 1,200 points on Thursday - that was its biggest drop ever in a single day. Alongside these falls were also the Asian and the European markets, where it was possible to observe the Stoxx 600 - the main benchmark index of the Eurozone - losing 12% and the South Korean index - Kospi - to fall by 7%. In Portugal, the PSI-20 fell by 11.5%, which was its worst performance since the 2008 financial crisis that withdrew €7.5 billion from the Portuguese index.

As it is common in days of greater risk aversion, more secure assets tend to be sought and this is what happened with the debt market. It was possible to observe a relatively sharp drop in yields around the world. In particular, the Eurozone yields declined in practically for all countries, with the German debt having the highest demand. On the other side of the Atlantic, the yields of US government bonds also declined, being led by a decrease in maturities of two and five years. Longer maturities lost less value; however, the debt interest rates of 10 and 30 years knocked historic minimums both on Tuesday and Friday. As a consequence, the yield curve ended up becoming steeper, also reflecting the possibility of a future cut in the American Federal Reserve's leading interest rate.

With regards to oil and especially crude oil, it turned out to descend to the lowest level since January 2016. The prices sank for six consecutive days, contributing to a weekly loss of 16.15% - the biggest weekly drop since December 2008.

Moreover, the golden metal had a great appreciation on the first day of the week, yet despite all the remaining days being of greater risk aversion, gold never came back up. This kind of situation is not the norm, however there is a very clear explanation for this. Basically, in order to make up for the losses experienced in the stock markets or due to the existence of margin calls, investors were forced to sell the metal. Consequently, this led to a depreciation that ended up happening on the remaining days of the week and especially on Friday.

It is important to be aware of the fact that it is very possible that neither the virus nor its negative impacts will disappear in the near future. However, strong "opposition" against these unintended consequences is now expected. Several central banks may lower their target interest rates and several countries have also shown that there are open to expansionary public policies to stimulate the economy. As the impact of the coronavirus becomes more quantifiable, volatility in the markets could alleviate (both for good or for evil) then assuming a more consistent direction. There is, however, no reason to think that this bull market has ended, nevertheless to assume that a giant bear may have taken its place.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

Frederico Aragao Morais
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

Open Demo Account
I understand and accept the Privacy Policy and agree that my name and contact details can be used by TeleTrade to contact me about the information I have selected.
23 International Awards
Have a question?

We are ready to assist you in every step of your trading experience
by providing 24/5 multilingual customer support.

Follow us

Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.

© 2011-2021 Teletrade-DJ International Consulting Ltd

Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.

The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).

The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.

TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.

Please read our full Terms of Use.

To maximise our visitors' browsing experience, TeleTrade uses cookies in our web services. By continuing to browse this site you agree to our use of cookies.

Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Choose your language/location