Global stocks plummet as coronavirus risks rise
It was a sea of red in global stocks as traders continued to worry about coronavirus’s impact on the global economy. In Italy, the government announced a massive quarantine in the region of Lombardy. In the United States, the number of infections has continued to rise and a number of states, including New York have declared a state of emergency. These actions raise the possibility that the US and the rest of the world will go through a recession in the first quarter. Economists are left with little power to mitigate the effects as interest rates are already at record lows.
The price of crude oil had its worst day since 1991 after Saudi Arabia started a price war. The problems started last week when OPEC met in Vienna to deliberate on the appropriate action. OPEC members agreed to continue the daily supply cuts to 1.5 million barrels. However, Russia rejected the proposal because it would have given the US more market share. In response, Saudi Arabia decided to increase its production and offer discounts to its customers. Other countries are expected to increase production in a bid to gain market share. There will be three main impacts of weaker oil prices. First, major oil economies like Canada, Saudi Arabia, Russia, Iran, and Venezuela will struggle. Second, oil consuming industries like airlines will find some much-needed relief. Third, major oil companies, especially from the US will fight for their survival because of their significant amount of debt.
The Japanese yen rose today as traders rushed to safe havens. Japanese stocks, on the other hand, declined by more than 5% as traders digested the final GDP data of the fourth quarter. The data showed that the economy declined by 7.1% in the quarter. This decline, which was the worst since 2016, came in the annual quarter when the nation started a new consumption tax and started a $122 billion stimulus. The decline was mostly because of a 4.6% decline in capital expenditure. Japan is facing another economic decline because of the ongoing coronavirus threat. Recent data show that household spending, machinery orders, and housing starts are easing.
The EUR/USD pair continued the upward trend that started on February 20 when it was trading at 1.0775. The price reached a high of 1.1498, which is the highest it has been since February 12. The Average True Range (ATR), which is a measure of volatility has soared on the daily chart. Other oscillators like the MACD, CCI, and RSI have moved to the overbought territory. The pair may continue to see volatility as traders wait for direction from the Fed and the ECB.
The XTI/USD pair declined to an intraday low of 27.40, which is the lowest it has been since 2016. The pair then attempted to recover, and is now trading at 31.33. The Average True Range rose to the highest level in more than three years while the price is below all the short, long, and medium-term moving averages. The price of crude could remain at these lows as markets follow developments between Saudi and Russia.
The USD/CHF pair declined to an intraday low of 0.9180 as traders moved to the franc, which is often viewed as a safe haven currency. This price is below the YTD high of 0.9853, which is below all the moving averages. The on-balance volume and accumulation/distribution indicators have continued to decline. The pair may continue to decline as risks increase.