Market Briefing: Markets plunge as COVID-19 resurges in the USA

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Vrasidas Neofytou
Head of Investment Research

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Global financial markets suffered their largest one-day decline in three months on Thursday, mainly due to the recent rise in coronavirus hospitalizations in some US states which are reopening from the pandemic-linked lockdowns.

According to the latest reports, the number of virus cases has started rising faster in some U.S. states which rushed to reopen their economies, such as Texas, Arizona, North Carolina. Nashville has delayed moving into the next phase of its reopening process however an increase of cases was documented there as well.

Coronavirus Update:

Global cases: More than 7.5 million
Global deaths: At least 421,032
U.S. cases: More than 2 million
U.S. deaths: At least 113,818

Market Reactions: US markets moved 6% lower on concerns for a second wave of COVID-19

The US markets plunged by 6% yesterday, suffering their biggest one-day decline since mid-March, on the gloomy Fed’s US economic outlook for 2020 and the jump in coronavirus infections which threatens to slow down even further the economic recovery.

Fig.01: Dow Jones index, 2-hour chart

The Dow Jones index ended Thursday’s session with 6.9% in losses at 25.128, the S&P 500 slid 5.7% to 3.002, having its first three-day losing streak since March, while the Nasdaq Composite fell 5.3% to 9.492.

The concerns for a second wave of virus cases has forced investors to dumped stocks related to the progress of the economic reopening such as cruise operators, energy, airlines, casinos, and financials.

Asian markets dropped on Friday’s trading session, following the overnight losses in Wall Street and commodity prices over the fear for a second wave of COVID-19. Kospi and Nifty indices led the losses with 2% while Nikkei and Hang Seng ended the week with a 1% decline.

Volatility index-VIX jumps 50% on market sell-off

The Volatility Index which is considered the best fear measure in stock markets, jumped 50% yesterday, gaining support from the massive sell-off in the US equity markets and the broader risk-off sentiment.

Fig.02: VIX index, Daily chart

The VIX index rose to 41, its highest closing level since April 23, before retreating to 38 this morning, amid the rebound in US futures.

Crude oil:

Crude oil prices fell 8% on Thursday on concerns that an acceleration of virus cases in the US could slow the global demand recovery for petroleum products.

Fig.03: Brent crude oil, 2-hour chart

The WTI contract lost 8.2% to settle at $36.34 per barrel while Brent crude fell 7.7%, breaking below $40, to finish the day at $38.

Both oil contracts fell another 2% on Friday morning at $35.50 and $37.50 respectively, extending their overnight losses. The WTI contract lost almost $6 or 15% since it peaked at $40.50 per barrel on June 8th, while Brent crude lost $5.5 or 13% since topping at $43.50 at the same period.

Forex Market:

The US dollar and Japanese Yen were the strongest currencies across the board yesterday, mainly backed by safe-haven demand, in response to the broader sell-off in the risk sensitive currencies such as Euro, Sterling and Australian-New Zealand dollars.

The DXY-US dollar’s index which is a basket of major currencies, climbed to the 97 level, while the EUR/USD pair dropped near 1.13 and AUD/USD fell to 0.68.

Economic Calendar for June 12, 2020 (GMT+ 3:00):

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