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#1 02-10-2020 13:47:18

johnedward
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From: Paris - France
Registered: 21-12-2009
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Coronavirus's impact on the financial markets

Coronavirus's impact on the financial markets


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The economic turmoil associated with the virus situation has had a severe and far-reaching impact on financial markets, including markets for stocks, currencies and commodities (including crude oil and gold). Major events included an oil price war between Russia and Saudi Arabia after major crude oil producers failed to come to an agreement, which led to a collapse in market prices and a drop in market prices at the end of this year's first quarter. Due to the economic uncertainty and risk aversion that dominated the different periods of the year, safe haven assets such as gold benefited. During this year, gold hit record levels, over $2,000 an ounce.

But now, let's talk about the main effects of the virus situation on the world's markets.

The effects of the virus on stocks

In February 2020, the Dow Jones Industrial Average and FTSE 100 fell more than 3% in a single day as the virus outbreak worsened significantly outside of China. This followed the sharp drop in benchmarks in continental Europe after the steep drops in Asia. The DAX, CAC 40 and IBEX 35 indices each fell by around 3.5% and the FTSE MIB fell by nearly 6%. The price of oil had fallen sharply and the price of gold had risen sharply, reaching its highest level in several years. At the end of February, due to growing concerns about the virus situation, several US stock indexes, including the NASDAQ-100, S&P 500 index and the Dow Jones Industrial Average recorded their largest decline in over 10 years, with the Dow having lost 1,189 points, its biggest drop in one day since the earlier financial crisis. One day after this drop, stock markets around the world registered their biggest drop in a week since the 2008 crisis.

After 2 weeks of turmoil, in early March, stock markets around the world closed (while the Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 were already closed for the week), while U.S. Treasury yields at 10 and 30 years reached new historical lows, respectively below 0.6% and 1.25%.

President Trump has enacted an Emergency Credit and Pandemic Countermeasures Act, which provides for government spending of $8.4 billion. After OPEC and Russia failed to reach an agreement to cut oil production on 4 March and Saudi Arabia and Russia announced an increase in oil production on 6 March, oil prices fell 24.4%. This has increased volatility and uncertainty in all markets, including stock markets.

Overall, the stock markets fell more than 29% in March; implicit volatilities in stocks and oil have reached crisis levels; and credit spreads on lower quality debt widened significantly as investors reduced their risk. This increased turbulence in global financial markets occurred despite the substantial and comprehensive financial reforms agreed to by the G20 financial authorities in the post-crisis era.

Sharp drop in the market at the end of 3Q 2020

On the morning of 8 March, the S&P 500 fell 6.5% in just a few minutes after the market opened, causing the market to close for the first time since the financial crisis 12 years ago and halt trading for 10 minutes. At the end of the trading day, stock markets around the world saw massive declines, with the STOXX Europe 600 falling more than 19% from its early-year high and the Dow Jones Industrial Average having dropped by more than 6.5%. Yields on 10-year and 30-year US Treasury bonds hit new all-time lows, and 30-year bonds fell below 1.1% for the first time in history.

On 11 March, shares in the Asia-Pacific region closed. The Tokyo Stock Exchange's Nikkei 225 fell more than 19% from its highest level in the past year, while European stocks fell 10% (the worst single-day drop in history), so The Dow Jones Industrials Index fell a further 9% (breaking the one-day record set on 8 March), the NASDAQ Composite fell 9.3% and the S&P 500 fell 9.4% (the NASDAQ and the S&P 500 having also fallen more than 19% from their highs). These declines caused trading on the New York Stock Exchange to halt for the second time that week.

Overall, the virus has clearly had a sharp and negative impact on all of these above-mentioned markets - and their effects are clearly still being felt today.

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