Overseas epidemics triggered market risk aversion
Last week, the new coronavirus pneumonia epidemic spread across the world. The spread continued to trigger risk aversion in the market, and global stock markets and commodity markets experienced sharp declines. The European and American stock markets are bleeding heavily. The world’s major indexes have fallen by more than 10% on a weekly basis, and U.S. oil has fallen by more than 15%. The domestic commodity market has also fallen across the board last week. As of last Friday, crude oil in the last issue of the Energy Center fell by 13.92%, and fuel Oil prices fell by 14% on the week, asphalt fell by 11.07% on the week, and rubber fell by 10% on the week. Shanghai gold showed profit-taking after rising higher, falling slightly by 0.52%, while Shanghai silver fell 7.71% for the week. On the black side, iron ore fell sharply, with a weekly decline of 8.73%, and threads fell by 4.3%. Among agricultural products, palm oil hit a new low, with a weekly decline of 9.87%, while soybean oil and rapeseed oil were relatively resilient. In addition, cotton fell by 8.18% on the week, and Apple fell by 7.06% on the week.
As of 0-24:00 on February 29, 31 provinces (autonomous regions, municipalities) and the Xinjiang Production and Construction Corps in my country reported 573 new confirmed cases (570 cases in the lake, including 565 cases in Wuhan), 35 new deaths (34 in Hubei, 1 in Henan), and 132 new suspected cases.
As of 20:00 on March 1, Beijing time, a total of 61 countries and regions outside China have reported more than 7,600 confirmed cases of new coronary pneumonia. South Korea, Japan, Italy, Iran and other countries have reported The number of COVID-19 infections continues to increase, with the cumulative number of confirmed cases in seven countries exceeding 100.
“Fed Watch”: The probability of an interest rate cut in March is 100%. On the morning of February 29th, Beijing time, the latest survey data from CME Group’s “Fed Watch” showed that market participants expected that the probability that the Federal Reserve would maintain the current interest rate in the range of 1.50%-1.75% in March was 0%, and that it would cut interest rates by 25 basis points. The probability is 38.4%, the probability of a 50 basis point interest rate cut is 61.6%, and the total probability of an interest rate cut is 100%.
The U.S. election began to become the focus. “Super Tuesday” on March 3 is the most important day in the primary process of the US general election. At that time, 14 states in the United States will hold primaries on the same day to determine the ownership of more than one-third of the Democratic Party’s delegate votes. In addition, investors also need to pay attention to my country’s February Caixin service industry PMI, my country’s import and export data from January to February, the Federal Reserve’s economic Beige Book, and the United States’ February non-farm employment report.
European and American stock markets suffered “heavy losses”, and international oil prices suffered a heavy fall
As the COVID-19 epidemic continues to spread in overseas countries, risk aversion in global financial markets has been triggered. European and American stock markets have been severely hit. U.S. stocks have experienced the worst week since the financial crisis.
(Picture source: Yide Futures)
From a weekly perspective, the three major U.S. stock indexes all fell by more than 10% this week. Among them, the Dow Jones Industrial Average fell more than 1,000 points on two trading days, and fell a total of 3,583 points this week, the largest weekly drop in the history of the U.S. stock market. The decline for the week was 12.4%, the largest weekly decline since October 2008. The S&P 500 index fell 11.5% on a weekly basis, also marking its worst weekly performance since the financial crisis. Only two stocks in the index achieved gains this week. 96% of the constituent stocks were in the correction range. The total market value has reached a record high since February. About 4 trillion U.S. dollars evaporated; the Nasdaq fell 10.5% this week, nearly 13% lower than its historical record high.
The European stock market was also in mourning. The British FTSE 100 index fell by about 11% for the week, the German DAX 30 index fell by 12.5% for the week, and the French CAC 40 index fell by nearly 12% for the week. . This week, European stocks lost approximately $1.5 trillion in market value, marking their worst weekly performance since the 2008 financial crisis.
The Wall Street panic index VIX once soared to 49.15, the highest intraday level since February 2018. Market panic drove investors to buy U.S. bonds as a safe haven. The U.S. 10-year Treasury bond yield fell to a record low of 1.1099% on Friday, staying at a record low for the fourth consecutive trading day, while the 30-year Treasury bond yield once fell to a record low of 1.637%.
As the epidemic panic continues to impact risky assets, both U.S. and Burundi oil suffered heavy losses last week. U.S. WTI crude oil fell for six consecutive trading days, hitting a low of $43.85 per barrel since the end of December 2018. The weekly decline exceeded 15%, the largest weekly decline since the end of 2008. At the same time, Brent crude oil has fallen for 6 consecutive trading days, refreshing its lowest level since July 2017 at US$48.94/barrel, a weekly decline of nearly 14%, the largest weekly decline since January 15, 2016.
It is worth mentioning that Brent crude oil fell by 13.64% last week, while only Brent crude oil fell by more than this since 2000. There are 5 times. Li Yunxu, a crude oil researcher at SDIC Essence Futures, told a reporter from Futures Daily that the plunge in international oil prices last week was mainly due to the sharp weakening of macro expectations brought about by the spread of the new coronavirus pneumonia epidemic. “In the context of global asset resonance, changes in the supply side of crude oil are the key to determining its impact on prices through commodity attributes. Currently, OPEC+ is in a pattern of deepening production cuts. Since the outbreak of the new crown epidemic, the production reduction alliance has also continuously released to the market the possibility of further production cuts. Plans such as 300,000 barrels per day, 600,000 barrels per day, and 1 million barrels per day have not been finally confirmed. From March 5th to 6th, OPEC+ will usher in a new round of production reduction meeting. This meeting will have a certain impact on the current situation. Oil prices in a panic are critical.”�Changes in orders from textile and apparel companies and residents’ spending habits will intensify the pressure on the domestic cotton spinning industry. Internationally, the COVID-19 epidemic has further increased downward pressure on the global economy, and cotton demand may drop significantly.
It is understood that the current spring clothing sales season coincides with the closure of offline physical stores and logistics and distribution problems in online sales, resulting in spring clothing sales this year being lower than in previous years. The shelving of ready-made garments will cause inventory backlogs in clothing companies, causing cash flow difficulties for the companies, thereby affecting the purchasing plans of clothing manufacturers in the next quarter, and gradually affecting the recovery of the entire textile and clothing industry chain upwards. In addition, due to the sudden epidemic, many families have temporarily cut off their income sources, leading to a tightening of household expenses, thus curbing non-essential consumption.
As for the international cotton market, Tian Yaxiong believes that judging from global cotton consumption statistics in the past 20 years, cotton fiber has been replaced by other chemical fibers, and demand growth has reached a bottleneck. At the same time, cotton demand has a certain degree of elasticity, especially when the impact of events such as the 2008 financial crisis and the 2011 European debt crisis declined significantly. Presumably, if the epidemic continues to spread globally and drag down economic operations, from a macro perspective, global cotton demand will also suffer a significant impact similar to that in 2008 and 2011.
“From the perspective of supply and demand structure, although the domestic cotton market is in the process of destocking, the supply in the international cotton market except China remains abundant, unless there is a future crackdown on U.S. cotton. Policy procurement changes the supply pattern, otherwise domestic cotton prices will be difficult to rise independently due to the impact of internal and external price differences on the competitiveness of cotton yarn.” Tian Yaxiong said that currently affected by the epidemic, the terminal consumption situation of cotton is not optimistic, and unilateral sustained increases It is more difficult for the market to arrive as promised. Therefore, the weak rise in cotton prices will continue.
The first death case of new coronavirus pneumonia in the United States, Trump: is considering taking some Chinese anti-epidemic measures
On February 29, local time, the Washington State Health Department stated that a patient with COVID-19 in the state died, becoming the first death from COVID-19 in the United States.
On February 29, local time, US President Trump held a press conference at the White House. When answering a question from a reporter from the main station, Trump said that the United States is currently considering taking some of China’s anti-epidemic measures, and he also positively evaluated China’s epidemic prevention and control effects.
Subsequently, US Vice President Pence said at a press conference that the United States will ban the entry of foreign citizens who have been to Iran within 14 days. At the same time, the United States is expanding travel ban areas, urging Americans not to travel to Italy and South Korea.
In addition, Trump also called for the Federal Reserve to cut interest rates. He said the risk to the U.S. remains low and will meet Monday with the world’s largest pharmaceutical companies, which are working very quickly to develop a vaccine for the virus. There are 43 million masks in the United States, and American companies continue to produce them in large quantities every month, so ordinary Americans do not need to rush to buy masks. When talking about whether the Federal Reserve should cut interest rates, Trump said that the Federal Reserve has a huge influence on the market at a psychological level. The current interest rates in the United States are at the highest level in developed countries. We should have lower interest rates and hope that the Federal Reserve will do its part. Work.
In fact, in the face of the disruption to financial markets caused by the epidemic, Federal Reserve Chairman Powell cannot sit still. Powell issued a statement on February 28, saying that although the fundamentals of the U.S. economy remain strong, the COVID-19 epidemic poses “evolving risks” to economic activity. The Federal Reserve is closely monitoring developments and their impact on the economic outlook and has pledged to take appropriate action to support the economy if necessary.
The market’s expectations for the Federal Reserve to cut interest rates have increased significantly compared with the previous week. Data updated on the 29th by the Chicago Mercantile Exchange’s “Fed Watch” shows that the market expects the probability that the Federal Reserve will cut interest rates by 50 basis points in March this year has reached 94.9%, and the probability of cutting interest rates by 75 basis points this year has reached 73.2%. Although the Fed’s interest rate cut at this time is regarded as a good medicine that can “cure” the market, its effect is still unknown. Generally speaking, lower interest rates boost economic growth by boosting market demand. However, according to the industry, the COVID-19 epidemic is affecting global commodity supply, and interest rate cuts do not seem to solve the problem of supply shocks. </p
