Major international stock markets including the Dow Jones, STOXX 600, and the FTSE 100 have today entered correction territory, having suffered a drop of 10% or more in cases from their recent peaks following continued coronavirus fears and the subsequent impact upon labour and supply chains globally.
So far today the FTSE 100 has lost 4.3%, meaning the index has lost over 10% this week – its worst week since 2011. Today’s losses are valued at approximately £75 billion, which takes the total losses since Monday to £160 billion. Over in mainland Europe and the main markets in Italy, France, Germany, and Spain are all negative; all of which has pulled the Eurozone’s STOXX 600 market down and into correction.
“In two short weeks, investors have changed their views of the markets from flawless to hopeless”
Wayne Wicker, Chief Investment Officer at Vantagepoint Investment Advisers
In the United States, the Dow Jones, Nasdaq, and S&P 500 are all down 10% from their previous peaks set just a fortnight ago, with energy, tech and industry all hit hard by the virus fears and related impacts to economic output and trade. The Dow in particular has already lost over 2,000 points this week, with six consecutive days of losses at present.
The knock-on effect from the virus had a limited impact on western markets for the past fortnight, but the spread of coronavirus beyond south-east Asia in recent days has brought the virus too close for comfort for many investors. Monday saw gold set all-time Pound Sterling and Euro price records, as investors rushed to safe haven assets rather than maintain their support for stocks, and the price today has risen 1.51% - up £20 per ounce from £1,264.85 to £1,284.29.
After reports of several cases over the weekend – news which triggered gold’s gains – Italy has now confirmed 400 cases of the Covid-19 virus, with additional cases in the US, Germany, Spain, Norway, and the UK. The World Health Organisation is now briefing that infections outside of China have outpaced those in the country for the first time.
Cities and towns have been put into lockdown, with governments closing schools, offices, factories, and public transport. China has already instituted strict rules on only emergency service personnel, tradesmen, and supermarket staff working, and other nations are beginning to follow suit.
President Trump tried to alleviate fears by reassuring the US public that a vaccine was “rapidly developing”, but this was quickly quashed by Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, who said a vaccine would likely take a year to make.
To add insult to injury, Goldman Sachs is now warning that US earnings growth could be completely wiped out for 2020 if the Covid-19 virus isn’t contained, while in the UK, the deputy governor of the Bank of England, Sir Jon Cunliffe, told an audience in London that there’s little central banks can do with fiscal policy to help in the event that the coronavirus worsens.
Safe haven demand
Today’s gold price increase in Pounds and Dollars shows another increase in demand for the precious metal, but its not the sole safe haven being sought after the moment. Treasury bonds are another haven with traditional negative correlation to stock market movements, and today’s plunge for the markets has seen the 10-year and 30-year Treasury bond yields reach all-time lows.
New all-time lows in 10-year and 30-year Treasury yields.— Charlie Bilello (@charliebilello) February 27, 2020
30-Year: 1.76%. pic.twitter.com/scUQJ2E8Nb
Continued demand will drive these yields even lower, which is damaging to investors as longer term yields always risk losing out to inflation over time. If the yields go negative then investors are quite literally paying to lose out in the future, which won’t sit well with investors. A move away from bonds could drive gold’s growing demand even further, and help push the gold price back to £1,308.73 per ounce or even higher.