Coronavirus impacts to the Global Markets - Ausprime Cyprus Investment Firm (CIF)

Nikolas Stylianou

03 March 2020

Tourism Sector

Coronavirus is
the major factor that plays a significant role for the global markets fall the
recent weeks. One of the most important impacts of the coronavirus is on the
tourist sector which harmed a lot the economy in the European zone. The
European tourism sector has lost “two million overnight stays” in
hotels since January because of the new coronavirus epidemy, European Internal
Market Commissioner Thierry Britton said today, estimating that losses to the
industry were at least one billion euro per month. On January 25, China banned
travel abroad in an attempt to halt the spread of the epidemy. It is the
largest “producer” of tourists in the world, with approximately 150
million trips abroad in 2018. Since January, Chinese tourists are no longer
coming to Europe.

Stock Markets

Coronavirus
panic has triggered a new crash on the stock markets today, marking the biggest
weekly loss since the global financial crisis of 2008, with stocks falling to $
5 trillion. The price showed no signs of slowing, as major European markets
dipped 2-3% after opening, and continued security search pushed US Treasury
yields to new record lows. According to the bets now, the US central bank (Fed)
will lower interest rates next month and that other major central banks will
follow, trying to shield the economies from trouble and prevent a global
recession. “Investors are trying to discount the worst-case scenario and
the biggest risk is what will happen now in the US and other major countries
outside of Asia,” said SEI Investments’ head of Asian equities. “This
period is very uncertain, no one really knows the answer and the markets are
really panicking,” he added.

Major European Asian and US indexes

Restructuring in
international trade and supply chains, school closures and major event
cancellations have made the prospect of a global economy already grappling with
the impact of the US-China trade war bleak. The MSCI Global Stock Index, which
tracks nearly 50 countries, fell 1% after opening European stock markets and
nearly 10% weekly, the worst since October 2008. Wall Street shares dipped
4.4%, their biggest drop since August 2011. They are now recording a 12% loss
from a record high just nine days ago, entering the so-called correction phase.
The CBOE volatility index, often referred to as the “fear index”,
jumped to 39.16, the highest level in nearly two years, compared to 11-20 in
recent months. In Asia, the MSCI regional stock index (excluding Japanese
shares) declined 2.7%. The Japanese Nikkei index dipped 4.3% amid growing fears
that the July-August Olympics could be canceled because of the coronavirus.
“Coronavirus now looks like a pandemic. The CSI300 index of Shanghai and
Shenzhen stock markets fell 2.9%.

Bond Markets Gold & Oil

The lure of
guaranteed income has pushed US bond yields to dip, with those of 10-year
securities landing a record low of 1.241%. This performance is lower than the
US Treasury bonds’ quarterly yield of 1,436%, boosting the so-called yield
curve reversion, which is historically considered one of the most reliable
precursors to a recession in the US. Expectations that the Fed will lower
interest rates to deal with the blow to the American economy are rising in the
money markets. Analysts say the Fed’s futures are now discounting a 75% chance
of a 25-basis point drop (0.25 percentage point) at the next central bank
monetary policy meeting on March 17-18. Gold investors, in an effort to cover
their losses from the stock market, preferred to sell the precious metals in
order to avoid the margin calls. Oil market moved dramatically to the downside
to almost 13 dollars since last week as the demand commenced decreasing. People
have stopped using the means of transport including trains, cars, even
airplanes and this caused some billion dollars be lost. The
O.P.E.C(Organization of Petroleum of Exporting Countries) made an agreement
with its allies to cut oil production in order to raise prices and balance the supply and demand It’s estimated
that they had agreed to cut around 500,000 barrels per day.

Global Markets Short Recover

European stocks are trading slightly higher as investors hope big central banks and governments are moving to tackle the outbreak of the epidemy. The G7’s central bankers and finance ministers will hold a teleconference to discuss measures to deal with the coronavirus epidemy, though a source close to the G7 said no details of immediate fiscal measures would be announced. Monetary policy: The pan-European STOXX 600 index rose 2, after jumping 5% for Wall Street indexes. Japan Index rose up after the central bank promised that they will provide sufficient liquidity to the market. In addition, the AUS index also recovered from its huge fall with investors being optimistic and believing that central banks will stimulate the economy.