FRANKFURT (dpa-AFX) – someone calls for fire, everyone rushes to the exit at the same time, it gets tight, panic breaks out: there is hardly any other way to describe what is going on in the global financial markets early in the week sometimes. Investors fear a global economic crisis due to the coronavirus epidemic. In addition, oil prices collapsed after the failed negotiations of major oil states to cut production. Stock prices fell as safe investments like gold and government bonds from major industrialized countries were in demand. Traders are already making comparisons with the stock market crashes of 1929 and 1987 and speak of a “black Monday”.
“Although the number of infections in China appears to have reached a plateau, the corona wave continues and it is not yet possible to predict when it will end,” writes analyst Ralf Umlauf of Landesbank Helaba. “Uncertainty is high and the outlook for the economy and the markets is difficult to assess, especially as oil prices continue to fall sharply.”
The Dax followed very weak Asian trade at the start of the week and fell more than 8% to 10,572 points. At the end of the morning, he was still clearly in the red with 10,900 points. The main German index had reached a record 13,795 points just three weeks ago. The least since: more than a fifth.
The latest survey conducted by sentix researchers underlines this: investor sentiment in the euro zone collapsed more sharply than ever in a month of March and fell to its lowest level since April 2013.
“After double-digit price losses in record time, one wonders whether a bear market can be avoided,” says market strategist Clemens Schmale of Godmode Trader. By this he means whether we are currently seeing the start of a longer downtrend or just a short-term pullback into an intact long-term uptrend, like in 2015/16 and 2018, when the Dax fell even sharper up and down.
More than 100,000 people around the world have now been shown to have been infected with the new coronavirus. According to experts, the number of unreported cases is likely much higher. About 15 in every 100 infected people become seriously ill, especially the elderly and those with previous illnesses.
Political reactions can help contain the spread, but do little to calm the situation in some countries. Italy seals entire areas and the country’s information policy is chaotic. No one knows what will happen and how the exclusion zones with their approximately 16 million inhabitants will be controlled.
The consequences of the spread of the virus have hit the economy in many areas. Many countries have imposed travel restrictions, companies refrain from traveling on business, concerts are canceled, holidaymakers prefer to stay at home. Airlines and other tourism businesses are feeling it. Lufthansa on reductions in their flight schedule due to lower demand. Over the next few weeks, it wants to reduce its capacity by up to 50%.
Industrial companies that buy many intermediate products in China experience delivery bottlenecks. Many factories in China have been closed due to the viral crisis. As a result, Chinese exports fell 17.2% in January and February compared to the first two months of the previous year. Additionally, car sales collapsed in February in the Chinese market, so important to German automakers.
The deciding factor now is how quickly the spread of the new type of coronavirus can be brought under control and the way in which politics and central banks act. The first steps have already been taken. The US government is reportedly working on a program to aid the US economy, and the grand coalition in Berlin wants to protect US businesses from the effects of the corona crisis. To do this, it wants to extend the partial unemployment benefit and give a boost to companies particularly affected financially.
Many central banks around the world have also lowered their key interest rates to allow banks to extend cheaper loans to businesses. According to analyst Helaba Umlauf, the European Central Bank is also under pressure to act this week. The majority expect interest rates to drop to minus 0.60%, he writes.
Besides the flight to safer investments, expected monetary policy is also putting pressure on bond market returns. The ten-year government bond yield fell to minus 0.828% earlier in the week. On the other hand, rates on fixed income securities rose. For the future of the futuristic Euro Bund it has increased by almost one percent. Gold was also in demand.
Oil prices, on the other hand, have fallen more sharply with losses of more than a quarter than they have been for almost 30 years. After the failure of negotiations between the oil cartel of OPEC and producing countries like Russia, which are grouped within the so-called OPEC +, on a slowdown in production, the dispute between Saudi Arabia and Russia on future production volumes seems to be stepping up. Even an oil price war in the form of increased production volumes between the two countries seems possible.
At the start of the week, these fears mainly put pressure on oil stocks, which are valued by many investors as dividend stocks. Stock prices of BP, Shell, Total and Eni have at times collapsed by more than 15% each.