GLOBAL MARKET SNAPSHOT
Global equities pulled back sharply on Monday with some markets giving back the entirety of their year-to-date gains. Coronavirus fears triggered moves as investors try to project the possible impact of contagion or widespread quarantines on the global economy. As a result, cyclical industries (e.g., energy, materials, travel & leisure, luxury goods) and those markets most dependent on China as a source of demand (e.g., emerging markets) were the hardest hit. VIX jumped by four points to 18.2 the largest one-day move for the ‘fear gauge’ since August when the trade war between the U.S. and China appeared to be at a tipping point. Markets in China and Hong Kong remained closed for the Lunar New Year holiday, but U.S.-listed ETFs tracking the markets fell -3.8% and -3.6%, respectively. In the U.S., large cap value stocks lagged and the energy -2.8% and technology -2.4% sectors saw the largest losses.
Bonds extended last week’s gains. Over the past five trading sessions, the 10-year Treasury has seen its strongest gains since August when the U.S. and China ratcheted up trade rhetoric. The Italian 10-year yield dropped 19 bps, the largest single day rally for BTPs since July, after a far-right populist alliance was defeated by the center-left democratic party in a regional election. Emerging market debt did not fare as well with most sovereign issues seeing weakness.
The U.S. dollar index gained +0.1% as haven currencies got bid. The commodity sensitive crosses were particularly hard hit including Aussie dollar -1.0% and Norwegian krone -1.0%. In emerging markets, it was South African rand and Russian ruble weakening -1.5% and -1.3%, respectively.
The Bloomberg Commodity Index declined -1.4%. The index is lower by -4.5% during its five-day losing streak, the worst performance over a five-day period in over a year. Energy continued to be a major detractor as WTI fell -2.5% to $52.83 per barrel, a three-month low.
A measure of German business confidence declined, in contrast with expectations. The ifo Institute’s Business Climate Index printed at 95.9, down from 96.3 in December and below expectations of 95.9. The expectations and current assessment components each came in shy of expectations, although the assessment of current conditions rose from a month prior. On an industry basis, recovery is being seen in manufacturing and retail, while the service and construction sector indicators has fallen. According to the release, “At the start of the year, sentiment among German managers is somewhat diminished…This was due to companies’ more pessimistic outlook for the coming months. In contrast, the indicator of the current situation rose slightly. The German economy is starting the year in a cautious mood.”
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