Monday
March  9
Weekly market update
intro In a context of mistrust towards risky assets, due to persistent fears about the economic impact of the coronavirus, the financial markets have just experienced another hectic week. The financial markets have thus extended the correction of the previous week and finished at their lowest level since May 2019. Volatility clearly characterized trading, with daily variations of strong amplitudes, but in the end it was the sellers who kept the upper hand. And markets are now facing a collapse in oil prices...
Indexes

Wall Street is heading for a plunge, on the heels of European and Asian markets, as the coronavirus crisis took an even dire turn for the global economy, due to the collapse in oil prices.
Commodities

The oil cartel and its allies - Opec+ - added an unknown to the coronavirus equation on Friday when they failed to agree on a further reduction in pumping to sustain barrel prices. Contrary to what everyone thought, Russia refused to bend. The black gold then suffered a severe setback.

But that was nothing compared to what happened over the weekend. Riyadh decided to open the floodgates wide. In the market, it came down to this: oil is down 30% this morning. Brent is trading at around $35, compared with nearly $70 at the start of the year and $86 in October 2018.
Equities markets

Hellofresh

5 out of 6 increase sessions. In such an environment, this may seem surreal. This is the case of the German stock Hellofresh, which is going against the tide of the indices. The stock has even just reached a new all-time high close to EUR 28. The scores are surprising, with an advance of 35% since the beginning of the year, bringing its performance in a sliding year to 166%.

The company specialises in the online distribution of ready-made meals. The group delivered around 280 million meals in 2019 and served more than 3 million customers in the last quarter. Its turnover is expected to reach 2,265 billion euros for the current year, an increase of more than 20% compared to 2019. The operating margin of 2.5% for the current year is expected to rise by one notch to a range of 4 to 5%.

The investment bank JP Morgan has just raised its purchase recommendation on the company. The company will replace Dialog Semiconductor in the MDax (index of the 50 largest German companies in terms of capitalization after the 30 companies in the DAX). The bank now believes that the group has great potential to become the benchmark for suppliers of cooking ingredients, especially as its prices overshadow traditional distribution.
Bond market

The Fed's surprise decision to lower its key rates by 50 basis points put investors on the alert. This decision was not well received by the market as it appeared to be a measure of desperation. The emergency measures have historically been followed by very difficult market conditions. All the big names have gone down, with sometimes historic returns, such as the 10-year US 10-year bond, which is trading at 0.80% yield, a 100 basis point drop in two weeks.

The same bearish trend is true for the main European benchmarks. The Bund fell to -0.73% and the French OAT to -0.33%. The decline in government bond yields does not seem to be controllable. Selection is therefore based on the quality of government debt, since Italy remains under pressure with an annual yield of 1.15%.

Chinese debt, for its part, is accompanying the US T-bond on its downward trajectory, with a return to all-time lows of 2.62% (see chart).

Chinese 10-year rate

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Forex market

Investors are worried about the effects of the coronavirus epidemic on the growth of the United States and are abandoning the greenback, the parity against the euro is trading at 1.131 USD . The Fed's 0.5% rate cut intensified the movement. In addition, Forex traders are now anticipating further rate cuts.

The single currency also gained ground against the pound sterling at GBP 0.87 (+300 basis points). The British currency continues to depreciate as the UK and the European Union are taking a hard line ahead of the post-Brexit agreement negotiations.

Emerging currencies have suffered strong losses such as the Brazilian real which hit a low against the dollar at BRL 4.6. GDP grew by only 1.1% in 2019, compared to 2.5% expected by the government of the largest country in South America.

As a safe haven currency, the yen has regained the sympathy of Forex traders. The Japanese currency gained over 250 basis points against the greenback at JPY 106.5. The same parity was trading around JPY 112 until a few weeks ago. The Swiss franc has also attracted buyers of "confidence" stocks, as the USD/CHF pair fell to 0.946 CHF (350 points in favor of the Swiss currency).

The Brazilian Real stalls against the Dollar

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Economic data

First sign of the devastating impact of the coronavirus on China. Manufacturing activity collapsed in February to its lowest level on record. The purchasing managers' index stood at 35.7 compared to 50 in January. This fall is even more pronounced than during the financial crisis in 2008.

In the United States, the latest wave of panic over the coronavirus epidemic is not fully reflected in the new results of the manufacturing PMI (50.1), as the reference period probably ended too soon for this to be the case.

At the monetary level, the Bank of Canada followed the Fed's lead after more than four years of status quo, with the Canadian institution reducing its base rate by 50 points to 1.25%.
Orders from German factories were up in January (+5.5%). Combined with the excellent employment data (273K job creations for an unemployment rate of 3.5%), they could not improve the mood of market players. The employment segment is a lagging indicator of economic activity.
Buyers surrender

As in today's session, the bearish directional direction will not have encountered any obstacle capable of generating even a tiny rebound. The bidding current will therefore have given up, a sign of renunciation, and the markets remain in the most complete uncertainty.

Investors were calling for monetary intervention, and the US central bank responded with a symbolic 0.5% decline, followed by its Canadian neighbour, but the confusion persists to the detriment of the price of risky assets and with high volatility (over the last 10 trading sessions, the S&P500 has exceeded or come close to 3% variation on 8 occasions).

The supply shock is accompanied by a crisis of confidence that weakens demand and a plunge in oil prices. The situation is meant to be exceptional, so exceptional remedies are needed. After the conventional monetary intervention, which could, moreover, be supplemented by an increase in the EQ, in order to avoid any blockage in the credit circuit, budgetary measures should be generalised to bring about a return of confidence. Politicians or central bank governors will have to target needs precisely and, above all, be very imaginative.