Commodities, General, Indices

Coronavirus Crisis - 5 key markets to watch

Ben Weiss, Friday, 13 March 2020

Coronavirus Crisis - 5 markets

Corona this, corona that. It’s all anybody is talking about… but that’s no surprise given what it’s done to the markets this week. We’ve seen volatility, crashes and 1,000-point moves before, sure, but the sheer scale of disruption where seemingly no market is safe is the incredible thing, worthy of labeling it a crisis. So, amidst the mass chaos, here are five markets in particular to watch.  

Bitcoin

Everyone’s favourite crypto has reacted, and not in favour of bulls. The 2,000-point drop it suffered on Thursday surprised some, given btc. is widely considered a safe-haven asset alongside the likes of Gold, mainly because it’s decentralised and not controlled by any single body.

It’s one of those assets that’s naturally volatile and commonly experiences large fluctuations. But Friday also saw the crypto drop another 2,000 points, down to 10-month lows of 3851.2. Facebook recently changed plans for its own crypto, Libra, something that had helped Bitcoin reach the levels it did last summer. This, the coronavirus and more recently, Trump’s decision to close off travel for Europeans to the US has pulled Bitcoin down and even ‘stripped it of its safe haven label’ - according to the Telegraph.  

The exciting thing about this unique market is that it really won’t be too surprising if it rises back to 10,000+, or capitulates down to sub-1,000 levels in the coming weeks. It’s so reactive to economic, political and monetary stimulus. 

FTSE 

The FTSE has had the worst single day of trading on Thursday since 1987 (Black Monday). That’s 33 years, meaning the 2008 financial crisis, Brexit nor the Swine Flu outbreak were as impactful on UK markets as the coronavirus has been.

Every single stock on the index fell on Thursday in an incredible day. Friday saw some respite for the free-falling index though, as it rose from a low of 5,200 to 5,600 at the time of writing. This is as cases of the virus intensified, with a handful of high-profile sportsmen testing positive and the death toll rose to 10. ‘Panic buying’ has been well broadcast as well, with empty shelves not going unnoticed, which would have added to fears. Thursday’s emergency Cobra meeting would have also worried investors, causing the fall. 

It’s now inevitable that England will follow the likes of Italy in going into a state of lockdown to prevent the spread of the coronavirus, yet despite a number of European nations choosing to close schools and implement bans on mass public gatherings, including Ireland, England is holding off...for now. The imminent lockdown could have a disastrous impact on the economy that will surely further punish the FTSE, but just how much damage will be done in the coming weeks?

Wall Street

The Dow came into focus this week as things across the pond intensified. We could have chosen a number of other indices; the Nikkei and DAX two prime candidates, but with the US only recently exposing cases, it might only be the beginning of an interesting journey for the world’s most famous index. . 

It fell to a near-two-year low when it dropped down to 20,409 on Friday morning, before remarkably clawing back 2,000 points by the afternoon. Prior to the partial revival, the weekly fall for the Dow was over 4,000 points. It just goes to show the potency of the coronavirus. It’s crippled the second-largest economy in the world, and is now going to work on the largest. 

How the US, and Trump in particular, now deals with the crisis will determine the lasting economic impact. He has banned travel to and from Europe, but in an attempt to assure investors was adamant trade would not be affected at all. As with a lot of these markets, the fear of what might happen is often worse than the reality itself, but the Dow will be an interesting metric to monitor, that will gauge just how competently the US is dealing with the outbreak.

International Consolidated Airlines Group

Again, take your pick of aviation companies… most are heading in only one direction. We’ve gone for this one for a couple of reasons though. Firstly, it’s an umbrella company that has under it the likes of British Airways, Vueling, Aer Lingus and Iberia. Therefore, it covers a greater market share of the aviation industry, and is thus a market that is more susceptible to impacts on the sector. 

Secondly, two senior executives at the firm purchased additional shares in the company, seemingly undeterred by the current climate of the industry. It’s one thing to announce confidence in the firm as PR propaganda to reassure investors and customers, but purchasing additional shares (to the tune of over €400,000 each) shows genuine belief the firm will prosper post-coronavirus.

The entire aviation industry is now at the mercy of consumer confidence. It may be a long, long time before things get back to complete normality, as even the slightest doubt of flights, hotels or events being cancelled will deter customers from purchasing flight tickets well in advance for fear of losing money. If this lull in passenger numbers carries over to the summer, peak time for aviation companies, the subsequent effect might be disastrous - Flybe are one of the latest casualties to already succumb to the virus’ impact

Brent Crude 

The oil markets were in focus last year when a state-owned Saudi oil base was attacked. Although it prompted significant downward moves in oil, the effect was short term, and the markets were quickly restored back to normality. 

What we have with oil markets and the coronavirus now though is something potentially far more long-lasting and damaging. OPEC, a group of all the world’s largest oil suppliers (excluding Russia) all met to address the drastic fall in demand for travel - with people staying home demand for petrol and of course flights has plummeted. To counter this, OPEC proposed to limit supply that each nation can produce, ensuring prices remain high to mitigate the loss in revenue from the lack of demand. Russia was also invited to the OPEC meeting but declined this proposition of limiting supply. 

What’s now ensued is an oil price war between Saudi Arabia and Russia, with both sides culprits in declining oil prices. Monday saw the largest single-day drop in oil price in 30 years, and this week Brent Crude has fallen over 20% as Riyadh promised to ramp up oil production in retaliation to Russia’s defiance. Further animosity between the two oil-producing giants might lead to huge concerns across the commodities markets.

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