Market Commentary 18th March 2020 from Charlie Hancock

With Covid-19 coronavirus dominating the headlines throughout the week, investors became increasingly concerned about the economic impact of the virus.

In addition to coronavirus related concerns, investors were trying to assess the impact of a disagreement between Saudi Arabia and Russia over the production of oil. Saudi Arabia’s decision to ramp up production resulted in the oil price plummeting. Royal Dutch Shell and BP saw their share prices decline across the week, by 32.08% and 30.09% respectively. Given the heavy weighting of these stocks within the FTSE 100, the index was dragged down significantly.

With Italy being placed on lockdown to curb the spread of Covid-19 and other European countries reporting rising numbers, European equities were sold off heavily during the week.

European indices posted record losses on Thursday following a speech from the ECB Governor, Christine Lagarde. The ECB did not cut interest rates and called on member states to combat the economic slowdown with fiscal stimulus. The decision by President Trump to announce a ban on travel to Europe for 30 days also fuelled the sell-off in European equities.

US equities were highly volatile last week, officially entering bear market territory (i.e. a 20% drop from the recent peak) on Thursday. The S&P 500 and the Dow both suffered their worst day since ‘Black Monday’ in the autumn of 1987. Investors were unnerved by the announcement of a travel ban by President Trump, with the US authorities failing to deliver a medical or economic response which could calm investor fears.

With the dispute between Saudi Arabia and Russia causing the oil price to decline sharply, oil stocks suffered heavy losses. Exxon Mobil Corporation saw their share price fall by 20.09% across the week.

With the spread of coronavirus only taking hold in other countries in recent weeks, China is one of the few areas where the impact of the virus can be seen in the economic data. Industrial production declined 13.5% during February in comparison to the previous year, with retail sales falling by 20.5%.

Whilst investors typically seek the safe haven of government debt in times of market stress, some analysts believe that liquidity concerns are forcing investors to sell government bonds across the globe. With government debt from issuers such as Germany being highly liquid, traders are selling these assets to release cash, which causes the yield to climb.

Treasury yields climbed upwards as investors chose to sell Treasuries in vast quantities. Analysts speculated that this was the result of both profit taking following the extraordinary rise in Treasury prices in recent weeks and liquidity issues forcing investors to sell their more liquid holdings.

GBP / EUR – Current 1.1057 Previous 1.1563

The Pound lost ground last week, with the announcement of an emergency rate cut by the Bank of England causing the UK currency to weaken. The pound fell by 5.9% against the US Dollar and 4.38% against the Euro.

In recent months, OPEC nations have been limiting production in order to support wholesale oil prices. Following Russia’s decision at the start of the month to stop lowering their output, Saudi Arabia announced on Saturday the 7^th March that they would discount their oil prices and raise production significantly. As a result, oil prices slumped on Monday before gradually falling further throughout the rest of the week.