On the New York Stock Exchange, futures on stock indices reached the daily change limit as soon as trading started in the new week. Thus, trade was halted in the US at night. Only when the situation calmed down the trade was resumed. This, however, did not stop the falls in Asia and in Europe.
Investors are anxiously observing the rapid spread of the coronavirus around the world, and more countries have introduced travel blocks and restrictions, raising fears of a deep recession in major economies. The opening of trade in Europe also pointed to a decline in indices. The German DAX decreases by more than 4 percent, the French CAC 40 decreases by more than 3.6 percent, and the Italian FTSE MIB by 3.7 percent. In the United States, futures remain below Friday's close.
It seems that the main reason for the deterioration of sentiment in the US is the sharp increase in infection – to over 35,000. In the US Senate, the aid package related to the current epidemic could not be approved. Democrats considered that the proposals submitted were not sufficient to help employers and employees.
Since the peak of the bull market, the S&P 500 index has fallen by more than 30 percent in total, while the German DAX decreased by 40 percent. During the Great Financial Crisis over a decade ago, SPX fell from the high by 57 percent and the DAX by 55 percent. Theoretically, indexes still have room to continue declines, because the current potential crisis related to the epidemic seems much larger than what we observed over a decade ago.
Oil also got cheaper on Monday. Two factors seem to have a negative impact on the prices of this commodity: the shock of the price war between Russia and Saudi Arabia and the fall in oil demand due to the COVID-19 epidemic. So far, nothing results from attempts to engage in dialogue between the parties in price war, which may lead to oil companies cutting spending and sending employees on furlough. This, in turn, may further lead to recession and rising unemployment.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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