We are in the midst of a once in a lifetime occurrence, with countries across the world shutting their borders and a lot of amenities. In South Africa, the president has announced the coronavirus a national disaster in terms of the Disaster Management Act. This means a travel ban is imposed on various countries, including China, the US, Italy etc. A ban is imposed on gatherings of 100 or more people with schools also being closed from Wednesday until after Easter Weekend. These strict measures are necessary in order to stop the spread of the virus. We have seen that if social distancing is implemented that it contains the spread, so in South Africa we are early on this and hopefully this will benefit us.
Cue the US Fed overnight, they cut interest rates to near zero, will keep the FED target rate between 0% and 0.25%. They have also announced a $700bio quantitative easing program. The market did not like a panicking FED and the futures fell 5%, placing US futures limit down again. So have the FED now used up their last bullets? The problem with this is that the corporate credit bubble in the US is now massively at risk and do we see the FED step in their as well? See the S&P 500 futures chart currently.
In Japan the BOJ has just announced that they will step up their bond repurchase program to ¥12 trillion. New Zealand cut interest rates by 0.75% overnight as well, to leave them at 0.25% currently, the lowest in their history. Australian equities were about 7% lower, while the Reserve Bank of Australia said it stands ready to buy bonds, sending yields tumbling. The rest of the world’s equity markets is all in the red.
Gold has bounced back a bit this morning to $1,540 from $1,525 were it closed on Friday. Palladium and Platinum is flat this morning after the carnage we saw at the back end of last week as concerns about auto sales sent the metal plunging into a bear market. Oil is down around 3% this morning trading around approaching the $30 handle once again.
On the currency front we have seen wild rides across the board, with USDZAR trading at R16.35 this morning, but we did trade as low at R16.06 after the FED announcement but as mentioned the market doesn’t like these unscheduled “emergency” cuts. We would recommend that we approach the market with extreme caution as the volatility will continue. The volatility index reached 73 on Friday, levels last seen during the 2008 financial crisis. It has subsequently fallen back to 58, but we got to brace for a wild ride. See the VIX chart below.
