By Andre Botha, Senior Dealer, TreasuryONE
Yesterday saw massive selling of most assets in a move into cash and liquid assets as panic grows over the impact of the Coronavirus. Governments are imposing draconian measures in an effort to contain the spread of the virus while central banks are providing huge amounts of liquidity to support financial markets.
The New York Fed in the US, brought out the big guns yesterday evening and announced plans to inject vast amounts of money into the financial system, totalling at least $1.5 trillion. And the Fed promised to start purchasing a range of Treasuries — a step that effectively marks a return to the 2008 crisis-era bond-buying program known as quantitative easing or QE.
There was a major dip in the Rand as the Fed announced their stimulus package with the Rand dipping to 16.07 in overnight trade, but the relief was short-lived, with the Rand rebounding to the R16.50 level afterwards. As is illustrated by the graph below:
Wall Street suffered its biggest losses since 1987, as the S&P fell 9.51%, the Nasdaq fell 9.43% and the Dow was down 9.99%. Locally, the JSE closed down by 9.72%. Asian stocks and US futures were heavily down this morning with India and Thailand having to suspend trading.
However, there has been somewhat of a recovery in the last hour as the Nikkei, Hang Seng and Shanghai having erased most of their losses and the US futures actually turning positive.
The Dollar was the big winner overnight as investors moved into the greenback after the ECB disappointed markets and the move to cash accelerated.
The Dollar is trading at 1.1200 against the Euro and 1.2550 against the Pound. The Rand continued to whipsaw throughout yesterday in trade that was characterised by widening bid/offer spreads as a lack of liquidity and risk aversion set in. The Rand is currently trading at 16.3900 but has been as weak as 16.6100 earlier. Other EM currencies have also recovered in the last hour as US futures turn positive.
Gold (graph above) lost over 3.0% late yesterday, closing at $1 560.66 after having been as high as $1 649.39 at one stage. Gold is currently at $1 587.12 while Platinum and Palladium are lower at $801.00 and $1 995.00 respectively.