BILLIONAIRE Warren Buffett once said that as an investor, it is wise to be “Fearful when others are greedy and greedy when others are fearful.”
Last week, the S&P 500 fell 11.49%, Nasdaq Composite lost 10.54%, Dow Jones Industrial Average fell 12.36%, UX 100 Index tumbled 11.12%, DAX skidded 12.44%, almost replicating Euro Stoxx 50 Index's decline (-12.39%).
Nikkei 225 was down by 9.95%, while the Hang Seng Index fell by a slower pace of 4.32%. The Russian MOEX Index skidded 10.88% and Spain’s Ibex 35 lost 11.76%.
In just six trading days, global stock markets lost US$6 trillion in capitalisation.
The situation even reached a point where the NYSE announced "disaster recovery testing in the Cermak Data Center between 8:30am and 11am ET" on March 7 amid Coronavirus fears..."
During this test, NYSE will facilitate electronic Core Open and Closing Auctions as if the 11 Wall Street trading floor were unavailable".
Long story short, they want to test as if the Covid-19 coronavirus had swept across Wall Street. It would be interesting to see the results.
Meanwhile, the market has already predicted that the Fed will cut rates in March.
What a contrast it has been from just two months ago when things were going smoothly.
Either way, after Kudlow spoke, markets began to recover the lost ground in the hopes that the Fed will do an emergency rate-cut.
Kudlow said in a Fox Business interview that investors should not “rule out more optimistic options, ” noting that there is no guarantee cases of the disease will “skyrocket” in the U.S.
Federal Reserve Bank of St. Louis President James Bullard, in turn, said on Friday "further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time.
“Longer-term US interest rates have been driven lower by a global flight to safety, likely benefiting the U.S. economy."
Bullard added: "Even with the current stock market price drop, equities have been on a long upswing."
Bullard also reaffirmed US GDP forecasts "don't look very severe" and the Fed is "willing to react if the virus has a major impact but will want to wait and monitor events until the next meeting."
According to zerohedge, tactical traders looking to sell their Puts in S&P products/take-off VIX Calls (even see retail redeem their “long vol” VIX ETNs) to book the positive PNL against whatever hits they’ve taken in their “long” books—and probably thereafter switch into a more “dynamic hedging” stance, just trading futures thereafter to manage exposures whether “long” or "short."
Overall, risks are surging once again. According to BofA global research, liquidation of $1tn annualised bond inflows exposing systemic “ghost in the machine” remains the biggest 2020 market risk.
At the same time, recession worries accelerate the Fed to shift to Yield Curve Control and fixed low rates. It also accelerates shift from QE to Modern Monetary Theory to finance fiscal spending frenzy in the coming quarters.
What is going to happen to stock prices now? Indicators suggest that US/ EU stocks are extremely oversold.
Theoretically, it should be a signal to buy. In reality, things are a bit more complicated. Nevertheless, in the following three weeks, we might see a vaccine for coronavirus, something that could reverse the market trend and stabilise the situation.
When markets are falling, the last thing is to listen to the “analyst”. You should always conduct your own research and follow a specific strategy.
Every crisis or panic selling is a great opportunity to purchase discounted stocks. However, if the global economy actually slows down and we start the second quarter with the same sentiment, it can take a longer time to recover.
On the other hand, we have central banks with fiscal and monetary policies. If they actually cut interest rates, gold prices might surge once again.
Next week’s most important events:
“Super Tuesday” will be the most important date before the US election
China’s NBS manufacturing and non-manufacturing PMIs for February
Global Manufacturing PMI data (Feb Final)
New Zealand: Import and Export Prices (Q4)
China: Caixin Manufacturing PMI (Feb)
UK: BOE Consumer Credit (Jan)
US: ISM Manufacturing PMI (Feb)
Australia: RBA Interest Rate Decision
EU: Inflation Rate (Feb)
New Zealand: Building Permits (Jan)
Global Services PMIs data (Feb Final)
Australia: GDP data (Q4)
China: Caixin Services PMI (Feb)
EU: Retail Sales (Jan)
BoC Interest Rate Decision
US ADP Employment Change (Feb)
US: ISM Non-manufacturing data (Feb)
US: Fed Beige Book
Crude Inventories Data
Australia: Trade Balance (Jan)
BoE: Gov Carney Speech
BoC: Gov Poloz Speech
Canada: Employment Change (Feb)
US: Non-Farm Payrolls
China: Trade Balance
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