At times, the US standard index Dow Jones collapsed by more than nine percent, the biggest drop since “Black Monday” in 1987. Investors fled the stock markets in panic, but other asset classes are also massively affected.
Ironically, the crisis currency gold cannot benefit from the panic on the stock markets, on the contrary: the gold price collapsed on Thursday. In the afternoon, the price of a troy ounce (31.1 grams) fell by up to $ 74 or around five percent to $ 1,560. That is the lowest level since the beginning of February.
The crash on the stock market triggered an escape into cash, said Joe Forster, gold fund manager and precious metal expert at the US wealth manager Van Eck. “Safe havens like gold, gold stocks and the US dollar have also fallen in this chaos.”
One reason is that professional investors had to deposit additional collateral with their brokers in view of the sharp price losses. This phenomenon is called “margin call” in the financial sector. In order to have cash for these collateral, many investors have separated from their gold investments, Forster said.
The strongly appreciating US dollar was also mentioned on the market as the reason for the gold slump. Gold is traded internationally in the American currency. If the dollar appreciates, gold becomes more expensive for many investors, which usually drops gold demand.
Government bonds
Government bonds are in demand in anticipation of an economic stimulus package from the European Central Bank. In return, the interest rate on ten-year federal bonds fell to minus 0.803 percent, later the yield was again somewhat higher. The yield on the two-year papers slipped to minus 1.02 percent at noon, approaching the record low reached on Monday.
By contrast, investors fled Italy’s government bonds. This temporarily drove the yield on ten-year Italian stocks to an eight and a half month high of 1.877 from previously 1.186 percent. They were heading for the largest daily gain since 2011. The comparable Spanish bonds temporarily returned as high as they did seven and a half months ago and were facing the largest daily gain since 2016.
High yield bonds
In view of falling oil prices, the crisis in US high yield bonds continues to worsen and is also weighing on other segments of the bond market. On Thursday, oil prices peaked at eight percent. In the meantime, Brent oil cost less than $ 33 a barrel (around 159 liters). This price level is far too low for the US shale oil companies, and they are also heavily in debt.
As a result, yields on junk bonds from the US energy sector rose to more than 16 percent. A few weeks ago, the yield was eight percent.
US energy companies make up about 11 percent of the total US high yield bond market. As a result, the average return on the market barometer for US high yield bonds rose to over 7.5 percent on Thursday. In January this was still around five percent. The segment of triple B-rated bonds, i.e. papers that rating agencies attest to just have a good credit rating, also saw rising yields, from 2.6 percent in January to 3.3 percent.
The Dax experienced one of its biggest falls in price on Thursday.
(Photo: dpa)
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Yields on risky interest rate paper are also increasing in Europe. The yield of the most important market barometer for European high-yield bonds soared from 2.5 percent in January to over 4.5 percent. Instead, investors fled to secure government bonds, such as federal securities.
The yield on the ten-year federal bond is close to its record low of minus 0.7 percent. “There’s a lot of pressure on the boiler,” comments Günther Scheppler, bond analyst at DZ-Bank. “The current market turmoil is sometimes more striking than at the time of the banking crisis.” The interplay between Bund yields and risk premiums in riskier segments of the corporate bond market is currently extremely extreme.
Rising yields are the expression of falling bond prices – more and more investors are separating from corporate debt securities. The most important index for US companies has already lost 4.5 percent since its high at the end of January. Corporate bonds with good credit ratings from Europe have so far got off lightly with a minus of 1.7 percent.
But the global spread of the corona virus increases the risk of a wave of downgrades and bankruptcies. Rating agency Moody’s recently raised its forecast for default rates on bonds from 3.4 percent to 3.6 percent. In the event of a sharp recession, default rates could rise to more than ten percent, warn Moody’s analysts.
Currencies
The fear of a global recession also moved the currency markets. Investors fled into currencies such as the dollar, yen and Swiss franc, which are considered safer and less vulnerable. In the dollar-euro relation, the US currency continued to appreciate after having gained significantly since mid-February. Fundamentally, market observers, for example in dollar-yen trading, recognize the greatest fluctuations in many years.
The losers in this search for security are the currencies of the emerging countries. On Thursday, for example, the South Korean won and Indonesian rupiah, as well as the Russian ruble, lost against the dollar. The Brazilian real also continued to fall, with a dollar temporarily costing more than five reals in return for the first time. The price slide is taking place despite a $ 2.5 billion intervention by the central bank on the foreign exchange market. Since the beginning of the week, the central bank has spent almost eight billion dollars to support the real.
The euro fell on Thursday amid violent financial market turmoil. The measures taken by the European Central Bank (ECB) to combat the effects of the corona crisis accelerated this. The European common currency cost $ 1.1090 in the afternoon. In the morning, she had quoted over $ 1.13. The ECB set the reference price at $ 1.1240. The dollar thus cost 0.8897 euros.
The ECB has taken a number of measures to mitigate the economic impact of the virus crisis. Among other things, it was decided to temporarily expand the purchase of securities. However, the deposit rate cut expected by many observers did not exist. ECB President Christine Lagarde called for decisive and coordinated action from the EU institutions and the member countries.
However, the euro came under pressure in the morning. The announcement by US President Donald Trump to close US borders for EU citizens for 30 days due to the spread of the corona virus led to another sell-out in the stock markets. The euro was also burdened by the situation in Italy. Most stores across the country have been closed since Thursday morning. Only supermarkets and pharmacies are open. The measures are likely to weigh heavily on the already weakening Italian economy.
The pound sterling gets under the wheel in the face of global flight to safe havens. It fell 1.9 percent against the dollar in the meantime and was trading at $ 1.2580, the lowest since mid-October. The Bank of England cut its key rate on Wednesday, which also affected the British currency. The British FTSE 100 stock index also fell by more than 10 percent.
Typically, the pound and FTSE100 move in opposite directions. This is because the FTSE companies make most of their profits abroad. A weak pound is therefore driving the stock index. That day, however, the rule was overridden. The fear of a collapse in transatlantic trade prevailed.
Oil markets
The downturn on the oil markets became ever faster. The North Sea variety Brent is cheaper by more than nine percent to $ 32.53 per barrel. The decisive factor was the announcement by US President Donald Trump to introduce travel restrictions in the United States. Because of the spread of the novel corona virus, the United States will close its borders to foreigners from Europe for an initial period of 30 days. This does not apply to travelers from Great Britain.
The announcement by the US government created an overall cloudy mood on the financial markets, which also dragged down oil prices. Because of the economic consequences of the corona virus crisis, experts fear a decline in demand on the world market. Expert Vandana Hari from the analysis house Vanda Insights also did not want to rule out a massive drop in demand. All previous forecasts for oil prices are currently under scrutiny.
In addition, oil prices are currently burdened by a price war by leading oil countries. The leading Opec country Saudi Arabia had recently announced a strong increase in production.
Bitcoin
The corona crisis is also having a full impact on the market for virtual currencies. Over the course of Thursday, practically all cryptocurrencies were significantly in the red, as data from the analyst house Coinmarketcap show. For the most important digital coin, the Bitcoin, it went down by around 22 percent to only $ 6,110. With the interim low of just under $ 5,900, the lowest level has been reached since May 2019.
The second largest currency, Ethereum, fell about 28 percent to $ 140. Ripple, Bitcoin Cash and Litecoin also went downhill.
“There is a sell-off mood on the market. Now investors are asking themselves whether a crash is imminent, ”commented Timo Emden from the analysis company Emden Research. “Bitcoin and Co are currently in step with global equity markets.”
With the crash of digital currencies, the status of “digital gold”, a “safe haven” in times of crisis, as dreamed of by observers, has moved far away. In the past, crypto enthusiasts had argued that virtual coins represented a revolutionary asset class that was increasingly decoupled from developments in the financial markets. As the current fall in prices shows, the corona crisis is affecting not only stocks, corporate bonds or oil, but also Bitcoin and Co.
According to Kai Kuljurgis, founder of the crypto investment platform Coindex, this is also due to the professionalization of the market: “A lot of institutional money has flowed into crypto values in recent months, including through futures. That drove the courses. In the event of a crisis, however, the new investors quickly withdraw. ”
Some crypto fans acted differently: “Many investors are also nervous in the scene. But they are also looking forward to inexpensive options for additional purchases. ”Due to the“ halving ”due in May, a change in the Bitcoin algorithm that is tightening the supply, Kuljurgis is anticipating a new upward trend.
Bank shares
In Germany, bank shares were particularly hard hit by the general slide on Thursday afternoon. Deutsche Bank’s share price fell by around 18.44 percent to a new record low of EUR 4.87. The Commerzbank share also slipped recently by around 21 percent, marking a new record low of EUR 3.12.
The renewed price losses show how badly the corona crisis could affect banks worldwide. The rates of other European money houses such as the Dutch ING and the French Société Générale also fell in double digits.
At the Italian institutes things also went downhill. In view of the fact that public life has come to a standstill in Italy, the rating agency Moody’s is expecting clearly negative consequences for domestic banks. The profitability and credit quality of Italian banks would come under pressure, the Bloomberg news agency quotes an assessment by Moody’s.
There are several reasons why the corona crisis hits banks hard – just one of them is the possible increase in bad loans. There are three main chains of impact: The pandemic will weigh on revenues because customers will be reluctant, whether it is business with companies, private customers or asset and wealth management.
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In addition, there is a higher risk provision for loans at risk of default if companies run into economic problems. In addition, interest rates are likely to remain low for longer. The banks’ margins will therefore come under greater pressure than before.
British bank stocks also had a difficult time. Barclays shares slumped more than 17 percent, HSBC securities about eight percent, Standard Chartered and Royal Bank of Scotland both 11 percent.
The rating agencies Standard and Poor’s and Moody’s certified the British banks on Thursday to be able to weather the corona crisis well. The Bank of England’s rate cut on Wednesday depressed the institutes’ profit margins. On the other hand, the stimulus package from the central bank and the government reduces the risk of corporate credit losses.
More: Dax crashes by more than twelve percent, the second largest daily loss in the history of the Frankfurt benchmark.
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