The colour red symbolises several things in the world; it is supposed to irritate bulls (in more ways than one), a glorious sunset, rugby teams, etc. Still, it also signifies danger as we saw last week with the sea of red that the equity and the EM currency markets looked liked. All based on the Coronavirus. Fears that the Coronavirus could push the global economy into recession saw markets tumble on Friday. All US equity markets were down over 3% at one stage on Friday. The week closed with some of the US equity markets touching 10% down for the week. The correction, last week, was bigger than the correction in the Global Financial Crisis, which gives one some perspective of the chaos that ensued last week.
US Fed chair Jerome Powell then released a statement stating that the central bank is “closely monitoring” the Coronavirus epidemic. He added that “We will use our tools and act as appropriate to support the economy.” This caused US equity markets turned a bit with the Nasdaq closing up 0.01% but the DOW and S&P 500 still ended in the red. But as stated earlier, a bad week for equities all round.
Gold fell from a high of $1 649.00 to close at $1 584.00, the reason for the significant fall in the price of Gold is when the market starts to panic, the market runs to US treasuries, the dollar and the yen. Gold gets sold off to get cash to cover margin calls for geared positions not to be stopped out in the market. Longer-term the safe-haven buying for Gold will continue as the market gets over the initial panic.
China’s official Manufacturing Purchasing Managers’ Index for February tumbled down to 35.7 points, the lowest on record and well beneath 45 expected. The Non-Manufacturing PMI also plummeted to a historic low of 29.6. Still, the Yuan is trading below the 7.00 level, and equity markets in China and the rest of Asia are all trading in the green this morning, with the Nikkei up 1.13%, the Hang Seng up 0.86% and the Shanghai up 3.09%.
Markets are now anticipating a 50-basis point rate cut by the Fed this month and both US Treasury yields and the Dollar have fallen. We have the US non-farm payroll number out on Friday, which could have the potential to move the US dollar, but in it will be interesting to see whether the Coronavirus will play second fiddle to the number when it gets released. We feel that the Virus will be the primary market mover this week with data in the back pages.
We will need to monitor the Coronavirus and the news surrounding the spread closely. Also, we need to see what the world is possibly going to do as Italy has announced a €3.6bio stimulus package to tackle the spread of the Virus. Everyone will undoubtedly watch the US with bated breath. For now, the ZAR will continue on its rollercoaster ride as we get beaten around in this time of uncertainty. The Rand weakened to R15.82 overnight at one stage but recovered to close at R15.66. In the early hours of the morning, the currency spiked to R15.89 but is currently quoted at R15.62.
See below USDZAR for 2020 so far:
On this backdrop, it is easy to see that the market is very jittery, and any news surrounding the Coronavirus will send the market in any direction. We believe that some of the panic is overstated and that we could see a bit of a correction. However, we have seen a lot of volatility, and a run to the R16.00 would not be a surprise given the current nervous state of the market.
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