Global equities plunged on Thursday after Donald Trump suspended travel between the US and Europe and failed to assuage markets during what was generally seen as a half-hearted speech from the Oval Office on Wednesday evening. One headline derisively called it “an error-laden ‘foreign virus’ speech”
Apparently, it was, in fact, “error-laden”. He later corrected himself to say that trade from Europe wouldn’t be affected and DHS said the restrictions actually apply to traveling foreigners who have visited Europe within the last two weeks. But it doesn’t matter. Markets have lost all patience with the White House. The US later told citizens to reconsider any travel abroad.
“Can we panic now? I am asking the flood of Twitter optimists and ‘experts’ (sadly, some of whom are actually experts) who have told us all since COVID-19 broke out that it was all going to be fine, over in weeks, and/or localized to other countries far away of which we know nothing”, Rabobank’s Michael Every chided on Thursday. “And we are looking at you too, Larry Kudlow”, he added.
Read more: Trump Falls Short In Oval Office Coronavirus Address
Both the MSCI World and MSCI Emerging Market indexes fell into bear market territory.
“With the WHO finally and officially saying the coronavirus ‘can be characterized’ as a pandemic, albeit in the passive voice for some reason, surely it is time to worry at the very least”, Rabobank’s Every went on exclaim. “And surely more so now that the US has banned travel from (and hence to) Europe… and as the US State Department has followed the lead set by Israel a week ago and advised against all outbound travel”.
The global rout spared virtually no one. South Korea’s Financial Services Commission may suspend short-selling for all stocks after other steps aimed at restricting short-selling failed to stem a rout which finds the Kospi in an absolute tailspin. Seoul is also pondering the creation of a stock stabilization fund – i.e., a plunge protection vehicle.
Things were particularly severe in Europe, where shares fell ~6% on Thursday. US equity futures bumped along at the lows, hitting limit-down on multiple occasions.
Treasury yields are plunging anew after Wednesday found US investors dumping bonds and liquidating profitable positions amid mass dislocations in the Treasury complex.
“Markets wanted more of a focus [from Trump] on tackling the domestic threat from the virus”, SocGen’s Kit Juckes said. “The pain is spread far and wide. US yields are lower overnight but it’s noticeable that so far this week, the bond market is mixed rather than allying”.
That latter point is key. If risk aversion continues on Thursday, we could well see bonds sustain their current rally, but so far this week, bonds and stocks have sold off simultaneously (even after Monday’s insanity, which found 30-year US yields down as much as 59bps), leading to the dreaded “diversification desperation”.
Oil fell sharply on Thursday as well, with Brent down as much as 7% at one juncture.
Summing things up was Robert Carnell, chief economist for AsiaPac at ING. “Markets will be looking at [Trump’s] claim that ‘This is the most aggressive and comprehensive effort to confront a foreign virus in modern history,’ and rolling their eyes”.
European travel and leisure stocks dropped 9% Thursday – that largest daily decline since 9/11.
Very positive stock market action, slowly weeding out ridiculous imbalances. Very healthy in my opinion.
“Slowly”
Yeah lol, maybe not so slowly. Still a lot of lofty valuations and bad debt to go though.
I’m surprised by the lack of analyst/media discussion of share buyback changes. Of the various “bad things” that can happen that have a large magnitude associated with them, a buyback bust may not be the biggest but it likely has the highest probability. I can’t imagine any company out there continuing to spend on buybacks in an environment that’s screaming “hoard cash, we’re gonna need it, and I don’t need to know why!”. I imagine, like the end of the bull market, the era of buybacks has suddenly ended, Feb 2020, done. The motivation of “best use of excess profits is investor return” now fails because A) the excess profits are vaporizing and B) there are now all sorts of better uses, some of them urgent. But I’m not seeing the memo anywhere.
I’m expecting, memo or not, to simply observe it in equity indices.