Don’t Blame COVID-19 for Circuit Breakers
The bloodbath has begun.
The Monday morning trading session was one for the history books. The S&P’s drop flipped the market switches following a 7% plunge.
Despite all eyes turning to the oil price war which we saw escalating over the weekend, there is way more to the capital flight than just that.
And there is far more than just the coronavirus outbreak and US’ delayed response to it.
Dollar Weak Since Sanders Emerged as Front-Runner
The international and political implications of a Sanders win are what first showed the initial signs of capital flight to the safe-havens, namely the yen and Swiss franc.
Bernie is well known for his focus on health care and has succeeded in winning the support of African American and Hispanic voters.
When combined with the coronavirus outbreak and how poorly the Trump administration has responded to the health emergency so far, Bernie’s “Medicare for All” was a clear component of his win in Nevada’s caucuses.
Despite Biden’s bounce back following the Super Tuesday victory, the possibility of a full Democrat House remains real now, posing another threat to equities markets.
Virus Emergency Opens Doors to Coordinated Response, But We See None Yet
Although we can’t say that Japan, Italy, China, the US, and others have taken the correct steps at the right time, we can expect fiscal and monetary measures to take place soon.
It isn’t just about locking down the entire country to help reduce the spread of the pandemic. It’s also about how the pandemic will continue to affect global economies.
With that in mind, the emergency rate cuts are obviously adding a bitter taste to the disaster. However, this isn’t to blame for Monday’s crash either.
We know that the ECB is likely to follow suit and dive into deeper negative territories on Thursday. Theoretically, this will add pressure to a soaring euro. But will easing be beneficial at this stage, or will it increase the risk of recession?
At the end of the day, if no one goes out to spend, GDPs will suffer even further than they did thanks to the downside of the trade war.
G7 should really act quickly and bring central banks and governments together to stem the crash.
Was the Oil Price War the Final Flourish?
Investors currently seem to be shrugging off any news that is unrelated to the oil market. However, this is likely to change with Washington’s response.
Saudi Arabia’s decision to go into an oil price war with Russia was one that affects all governments and economies and dents the global outlook.
However, the triggering of the “circuit breakers” spells something bigger than the historic ceasing in equities trading.