Markets Update Thursday 12/03/2020 – Hysteria

Frankfurt – 12/03/20


Here it is, the perfect storm that’s taking apart life as we knew it and that is crashing the world markets. Reactions to “fight this dreadful virus” are getting out of control, are completed uncoordinated, often illogical and remind to the Hollywood movie “Idiocracy”. 

Be it as it may, the World Health Organization now classifies the spread of the new coronavirus as a pandemic. Because of the spread of the coronavirus, the USA is closing its borders to foreigners from Europe. “We will suspend all travel from Europe to the United States for the next 30 days,” Trump mentioned in an address to the nation at the White House on Wednesday night. Travellers from Great Britain were excluded. Americans coming from Europe would have to undergo appropriate tests. According to the White House, the measure will apply from 23:59 on Friday. Passengers whose flights from Europe depart before that time may still enter the country.

Other countries are also intensifying their measures, and lock-downs and investors are seeking the far reaches – the result: stock market crashes that haven’t been witnessed in over 30 years. 

US Markets at a glance

The US stock markets suffered another massive price slump on Thursday.

The US leading index Dow Jones opened trading with a substantial minus and then continued to fall. It left trading with an almost double-digit loss of 9.99 per cent at 21,200.47 index points. This was the biggest daily loss since the stock market crash in 1987, and the Techwerte index Nasdaq Composite also continued to fall sharply, having already lost almost seven per cent at the start. It ultimately left trading 9.43 per cent lighter at 7,201.80 units. 

After the S&P 500 had lost 7 per cent in early trading, US trading was interrupted for 15 minutes following US stock exchange rules to take some pressure off the markets. After trading resumed, the indices remained in free fall even after the forced pause.

Far East Markets at a glance

Asia also saw another sharp decline on Thursday. In Tokyo, the Nikkei fell by 4.41 per cent to 18,559.63 points.

On the Chinese mainland, the index also headed south again: The Shanghai Composite lost 1.52 per cent to 2,923.49 points, while the Hang Seng in Hong Kong slumped by 3.66 per cent to 24,309.07 index units.

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European Markets at a glance

And the European stock markets also suffered another slump on Thursday. The EuroSTOXX 50 had started trading in deep red and remained far in the red for the rest of the day. Finally, it went down 11.5 per cent more easily at 2,570 points.

The Dax 30 had already opened with a substantial loss, then continued to fall sharply and closed with 12.24 per cent at 9,161.13 points in the red. The TecDAX also extended its initial decline, ending the day 11.0 per cent weaker at 2,321 points.

The panic reaction to the pandemic and other consequences of the coronavirus thus entered the next round. The announcement by Donald Trump to impose a one-month travel ban for most of Europe also contributed to this. Besides, there was bad news from Italy, the country most affected by the novel coronavirus in Europe, where the situation has worsened. The government announced further measures on Wednesday evening and is now closing bars, restaurants and almost all shops.

The slide was also accelerated because the ECB was unable to convince investors with its package of measures, including additional bond purchases.

Forex, gold, oil and crypto

The euro exchange rate limited the losses in late US currency trading on Thursday. Most recently the common currency was quoted at 1.1196 US dollars. In late European currency trading, the euro had fallen to a low of 1.1055 dollars. Previously the European Central Bank had set the reference rate at 1.1240 (Wednesday: 1.1336) dollars. 

The euro had already come under pressure in the morning. The announcement by US President Donald Trump to close the US borders for EU citizens for an initial 30 days due to the spread of the coronavirus led to another sell-off on the stock markets. The situation in Italy also burdened the euro. Since Thursday morning, most shops throughout the country have been closed. Only supermarkets and pharmacies remain open. The measures are likely to put a heavy burden on the already weakened Italian economy.

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Oil prices fell sharply on Thursday following an announced ban on European entry into the US and severe turbulence on the financial markets. A barrel (159 litres) of North Sea Brent cost 32.70 US dollars in the evening. The price of a barrel of US grade WTI fell by 2.08 dollars to 30.90 dollars.

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Furthermore, many investors are currently very unsettled, as the gold price has not yet initiated a price rally despite the crash on the stock market. On the contrary, the precious yellow metal is currently falling just as much as the stock prices – over $90 is dropping gold prices today.

Even the most important cryptocurrencies are currently falling into a bottomless pit. Bitcoin is losing more than 20 per cent today and is currently trading for just $4,800. Prices for Ethereum and XRP also fell sharply. Ethereum lost 17 per cent to $112 and XRP 13 per cent to $0.1360.

This shows that no market is being spared from the current sell-off, and all that remains is sheer chaos. A homemade problem…

Corporate and world news

Slack stock collapses

The office chat service Slack disappointed investors so much with its forecast for the future business that the company temporarily lost a fifth of its value. In NYSE trading, the share currently loses 23.98 per cent to 16.23 US dollars.

Although Slack had exceeded analysts’ estimates with the figures for the past fiscal quarter, which ended at the end of January, it had missed expectations with its sales forecast for the current quarter.

For the current quarter, Slack expects sales of between $185 and $188 million, which would represent an increase of 37 to 39 per cent. Analysts had expected more than 188 million dollars. For the full fiscal year, Slack expects sales to increase by up to 37 per cent to up to 862 million dollars. The Slack share started the year on the stock exchange in June last year with a price of more than 38 dollars. In post-trading on Thursday, the price fell to 17.22 dollars.

ECB clueless and unimaginative

Instead of lowering interest rates further, the ECB on Thursday merely announced individual aid packages. Although ECB President Christine Lagarde declared her readiness to use all the instruments at her disposal in an emergency, investors only pressed the sell button. 

Quite different in America. There the New York Fed announced new liquidity injections. The currency guardians announced in the evening that they would launch new so-called repo deals. A three-month transaction with a volume of 500 billion dollars would be launched on Thursday and another one-month transaction with the same capacity on Friday. Besides, the dollar watchdogs want to make changes to the maturity dates of their bond purchases.

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