PANIC, uncertainty, and fear spread across the world, collapsing markets and emptying shelves, especially toilet paper.
This was the scenario last week due to the Covid-19, oil price crash and US President Donald Trump’s move to stop flight from Europe, except the UK, for 30 days.
On the contrary, there are also winners in this volatile environment – bears and short-sellers.
Italy and Spain had to impose trading restrictions on stock markets, banning short-selling of dozens of stocks.
Companies asked for several days for a ban on bearish attacks, as happened with banks in the euro crisis or with Liberbank in 2017 after the fall of Banco Popular.
Finally, Spain's regulator said the ban would apply to 69 stocks, including all liquid shares whose price fell more than 10% on Thursday, and all illiquid shares that fell by more than 20%.
In Italy, the ban will apply to 85 stocks. The German stock exchange, in turn, said it would not impose such a ban.
Without any doubt, it helped indexes to recover part of the lost ground; nevertheless, almost all of them have finished the week in the red zone.
Overall, S&P 500 lost 8.79%, Nasdaq Composite fell 8.17%, Dow Jones Industrial Average tumbled 10,36%.
The UX 100 Index plunged by 16.97%, DAX 20%, Euro Stoxx 50 Index (-19.99%). Nikkei 225 lost 15.99%, while Hang Seng Index finished the week down 8.08%. The Russian Moex Index plunged 17.76% and Spanish Ibex 35 20.85%.
In an attempt to stop the spread of the virus, the United States suspended travel into the US from 26 European countries.
Many other countries followed the move, introducing border checks and placing a ban on arrivals mostly from Italy, Spain, France, China’s Hubei Province, Iran, and South Korea.
Additionally, Trump declared on Friday a national emergency, to free up US$50 billion in federal resources to combat coronavirus. It is important to keep in mind that consumer spending in the U.S. makes over 70% of the economy, so any suspension can hurt growth, or even cause a contraction.
According to the latest data, US hotel occupancy fell to 61.8% in the week ended March 7, meanwhile, the retail industry improved thanks to better sales led by pharmaceuticals, cleaning products, household supplies, consumables, bottled water, and food.
In order to understand the effect coronavirus has on the US economy, it is important to follow indicators for employment, inflation and gross domestic product.
Another topic to consider is, of course, the oil-price war between Saudi Arabia and Russia that may unleash the biggest flood of crude ever seen, pushing prices further down.
Over the last week, oil prices have tumbled 32%, to about US$34 a barrel. Morgan Stanley estimates if oil prices remain at low levels, it could shave 0.15 to 0.35 percentage points off of US gross domestic product in the first quarter.
Only five shale drillers, including Exxon, Chevron, Occidental, and Crownquest, can drill new wells at a profit at US$31 per barrel of West Texas Intermediate. The rest may have serious problems in the future...
What is going to happen next?
So far, the Federal Reserve has injected additional liquidity into the financial system, the European Central Bank expanded its bond-buying programme, and the Bank of Canada lowered interest rates to support the economy.
Most likely, in the near future, we will see an additional reduction in the rate. Some people expect this number to be around 50 basis points. Remember that with a significant reduction in the rate, gold usually becomes one of the beneficiaries.
Finally, don’t forget that a well-diversified portfolio, which includes investments from different sectors and asset classes, will help you protect your funds and perform better than average.
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