Morning Minutes 3/12/2020

Morning Minutes

US-Europe Flight Ban Rocks World Markets; ECB Provides Support To Banks

March 12, 2020
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

The coronavirus outbreak, which the World Health Organization has now designated a pandemic, continues to impact the world economy and world markets. The economic impact has continued to deepen with additional measures being undertaken to slow the spread including Italy shutting down its country, the US starting a 30-ban on flights to and from Europe, and sports leagues suspending games. Investors continue to watch on the other hand for signs of stimulus, who appear to be particularly disappointed with the lack of concrete fiscal support out of the United States, particularly after Canada and the UK acted yesterday.

More monetary support could be on the way in the coming days. The European Central Bank held its benchmark rate but has temporarily relaxed capital buffers for banks to free up capital and increase financial flexibility. Banks have been ordered to use this capital relief to help the economy and not to increase their dividends. The US FOMC (who has once again been doing the heavy lifting to date stateside) meets again next week (March 17-18).

The suspension of US-Europe flights has put pressure on markets overnight. US futures hit limit-down with 5.0-5.2% declines. Note that as we saw on Monday, a 7.0% intraday decline would trigger a 15-minute trading halt. We may or may not trip the circuit breaker again as European indices are down between 4.8% for Milan to 6.0% for Frankfurt, with the ECB news sparking a small bounce of about 0.3% in the last few minutes. Crude oil is getting hammered again with WTI down 6.25% toward $30.90/bbl, but so far it continues to hold above $30.00.

Canadian investors may want to note that the Australian market, which has a similar sector composition to the Canadian market, fell another 7.4% overnight. Asia-Pacific markets were otherwise not hit as hard overnight with declines varying between 1.5% for Shanghai to 4.4% for Tokyo with Hong Kong and Seoul both down about 3.8%.

Meanwhile, the flow of capital into defensive havens continues to subside. US bonds have levelled off with the 10-year treasury yield holding near 0.7%. Gold continues to fall away from its recent peak near $1,700/oz, trading near $1,615 down 1.7% today.

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