The Worst Market Selloff Since the 2008 Crash
Updated: Mar 2
Last week was the worse week in the financial markets since the 2008 crash. The threat of the Coronavirus known as Covid-19 reach into global economy’s such as Europe largely Italy and Middle East with Iran had fuelled a sell off into correction levels. The rate of contagion and the increasing statistics are now a major concern for global economies. Over the weekend there have been reports of this infection spreading in the US with two fatalities reported at the time of writing.
There was some reprieve in Chinese stocks and hints the selloff could have been overly done as markets begin the week in a more optimistic mood despite the continued growth in coronavirus cases and questions over Chinese growth. PMI surveys will come into focus this week but mostly the focus was on the weekend release of Chinese manufacturing (35.7) and services (29.6) PMI showing sharp declines.
Nevertheless, despite the concerns are an optimistic outlook as markets expect Central Banks to step in with a coordinated round of easing. The Fed’s March rate decision has been viewed as a 90% probability of a rate cut along with this week’s rate decision from the Reserve Bank of Australia and Bank of Canada all seem likely to show a dovish view.
Commodity based currencies showed the most weakness last week, due to its oil correlation. If we continue to see weakness in oil, we could expect further downside in these currencies but if OPEC step in, there may be a rebound. The AUD, NZD, CAD and NOK all sold off between 1% and 2%.
Cryptocurrencies and precious metals did not act as a safe haven asset, contrary to many people’s belief that both asset classes would do well in a panic. At the time of writing, Bitcoin is down 12% and had tested support at $8500 and Ethereum is down 16% at $220 support level. Gold fell by 3.5% to lows of $1586 and Silver is down 9.8% at $16.67 support level. The reasoning behind this could be that many had to liquidate their positions in order to meet margin calls and other short term obligations.
The effectiveness of monetary easing is uncertain if this virus continues to spread and force quarantine across major cities. In the short term, markets want to see such action as progress to the current health scare but its total impact is very much uncertain.
The Trading Week Ahead:
1.45am – China Caixin mfg PMI (February): forecast to fall to 45.7 from 51.1. Markets to watch: China indices, CNH crosses
3pm – US ISM mfg PMI (February): forecast to fall to 50.2 from 50.9. Markets to watch: US indices, USD crosses
3.30am – RBA rate decision: no change is expected but the current crisis may shape the discussions. Markets to watch: AUD crosses
9.30am – UK construction PMI (February): forecast to fall to 46.3 from 48.4. Markets to watch: GBP crosses
10am – eurozone unemployment data (January), inflation (February, flash): unemployment rate to remain at 7.4% while inflation rises 1.2%YoY. Markets to watch: EUR crosses
12.30am – Australia GDP (Q4): forecast to rise 0.4% QoQ and 2% YoY. Markets to watch: AUD crosses
1.45am – China Caixin services PMI (February): expected to rise to 52.6 from 51.8. Markets to watch: CNH crosses
1.15pm – US ADP employment report (February): 191K jobs expected to have been created. Markets to watch: USD crosses
3pm – Bank of Canada rate decision: no change to 1.75% rate expected. Markets to watch: CAD crosses
3pm – US ISM non-manufacturing PMI (February): index to hold at 55.5. Markets to watch: USD crosses
3.30pm – US EIA crude oil inventories (w/e 28 February): stockpiles to fall by 79,000 barrels. Markets to watch: Brent, WTI
1.30pm – US initial jobless claims (w/e 29 February): claims to rise to 226K from 219K. Markets to watch: USD crosses
1.30pm – US non-farm payrolls (February): 178K job expected to have been created from 225K, while unemployment rate holds at 3.6%. Markets to watch: US indices, USD crosses
1.30pm – Canada employment data (February): 10K jobs to be created while unemployment rate rises to 5.6% from 5.5%. Markets to watch: CAD crosses
3pm – Canada Ivey PMI (February): index to fall to 56 from 57.3. Markets to watch: CAD crosses