Trade of the Day: Risk assets dumped across the board as oil market craters; yen, gold, US Treasuries rally with 30- and 10-year yields at record lows. S&P triggers level-one circuit breaker after falling 7%; trading halted for 15 minutes. The next level is a 13% fall, which will trigger another 15-minute pause if it happens on or before 3.25 pm. Finally, should the markets fall 20%, they will close for the day.
Quote of the Day: “A significantly lower oil price is viewed as positive for China’s terms of trade, as nearly a quarter of its imports are commodity-related (ie around US$500 billion per year), of which oil comprises about half (US$250 billion). The weekend’s trade data registered a deficit, which was a surprise. This reflects the Chinese New Year effect and the lockdown of the country due to Covid-19. China exports’ deliveries were delayed, while imports were ongoing as external suppliers were functioning normally. On a forward-looking basis, as production gradually resumes in China, exports should recover while imports could start to feel the impact from a low oil price,” said HSBC FX strategists in a note published on Monday.
Stock of the Day: China Oilfield Services plunged as much as 23% after the oil price collapse today. The provider of oilfield services could be collateral damage in the Saudi-Russian price war, which could scramble the economics of many oil producers, forcing them to cut back on costs.
Number of the Day:. 2/3rds – The number of foreign exchange dealing platforms that Citigroup is severing ties with from its existing vendor base after a review found most trading venues did not provide value for money. Widely used systems such as Refinitiv-owned FXall and Deutsche Börse’s 360T are likely to retain strong support from banks, but smaller systems will come under pressure from the heightened scrutiny, according to the Financial Times.
Tip of the Day: “For longer-term investors who can look past the virus outbreak, it is likely that a bear steepening would occur. Therefore, in our view, maintaining an overweight to risky assets at the expense of bonds would be appropriate. We are watching treasury yields in the US and Germany, as well as copper, oil and gold prices among other indicators, to evaluate when the market is expecting the bull (steepening) to go away and the bear (steepening) to come to the rescue,” said Thomas Poullaouec, head of multi-asset solutions, Asia Pacific at T Rowe Price.
Financial markets collapsed as the oil price war threatened to clobber economies already reeling from a virus epidemic. Reflecting these fears, US Treasuries rallied hard, extending their gains from last week, with the 30-year yields at 0.714% and the 10-year yield at 0.3469%, both record lows. Fed futures were pricing in a cut as large as 75 basis points at next week’s Fed meeting and now are factoring in a 50-basis points cut. The US central bank could take rates close to zero by its April meeting, traders expect.
Stock markets fell across Asia with the Nikkei 225 index plunging 5.1% and Australia’s S&P ASX 200 benchmark crashing 7.3%. The MSCI Asia-Pacific ex-Japan index dropped 4.3%, while Hong Kong’s Hang Seng index fell 4.5% and China’s CSI300 shed 3.4%.
Credit markets were rocked too with the Asia IG index widening out 36 basis points to 107/112 and China’s credit default swaps 24 basis points wider at 72/79 bps.
Wall Street stocks are expected to be hammered with S&P Futures limit down at 5%. Bhanu Baweja, UBS strategist, said, “Credit-induced hit to forward multiples could take S&P 500 towards 2650-2700,” implying a fall of over 10%.
“A potential oil price shock to the market comes at a time when market liquidity was already beginning to be compromised by both economic risk and also the risk of fewer people around on desks. Amidst widening spreads, gap risk in the market is likely to rise significantly. Simplicity and risk management are of the essence,” he said in a note.