Cross-Asset Carnage on 'Black Monday'

The latest market highlights and our views on the key developments as 'Black Monday' sees sharp sell-offs in global equity markets, continued relentless demand for Treasuries, gains for the safe-haven Japanese yen and headwinds for petrocurrencies

Previous Day's Market Highlights

Monday was another day for the record books, where an oil price crash acted as the 'straw that broke the camel's back' for already coronavirus-stricken markets; resulting in a steep sell-off in global equity markets, and a continued rotation into safer climbs.

The virus itself continues to spread at a rapid pace, with confirmed global cases now numbering almost 110,000, and the epidemic being a pandemic in all but name.

Furthermore, a concerning chart for market participants will be the spread of the virus outside China, which appears to be closely following the Chinese outbreak with a 1-month lag. Only time will tell whether containment efforts are as successful as those seen in China.

Turning to Monday's markets, we must start with oil, where both Brent and WTI fell as much as 30% on Monday, after the collapse of the OPEC+ alliance led to the increasing probability of a price-sapping war for market share between the world's leading oil producers.

Both Brent and WTI fell to 4-year lows yesterday, settling 24.1% and 24.5% lower respectively, paring some losses after earlier tumbling by as much as 30%. Nonetheless, Brent's decline was the blend's biggest one-day fall since the Gulf War in 1991.


Of course, with oil prices having already been dented by expected drop in demand due to the coronavirus outbreak, the threat of over-supply in the market is the last thing that prices needed; with crude now facing a dual shock of sharply declining global demand, and sharply increasing global production. It would appear that prices are on a one-way train lower.

The decline in crude prices led to significant falls in petro-currencies, in G10 the Canadian dollar and Norwegian krone. As shown in the scorecard further on in this Note, both had a torrid time on Monday, the former falling to a 2-year low against its US counterpart.

Speaking of steep losses, global equity markets were roiled yesterday, as the unknowns of the coronavirus combined with the oil price crash to result in a sharply risk-averse trading environment.

After falls of around 5% in Asian markets, Europe followed suit, opening sharply lower and continuing to fall throughout the day, as all major bourses ended the day deep inside negative territory.

At a broad level, the pan-continental Stoxx 600 closed 7.1% lower, resulting in the index wiping out its year-to-date gains and entering a bear market. Unsurprisingly, the London market fared no better, with the FTSE 100 closing 7.3% lower, also entering a bear market, nursing losses of 20.3% YTD.

Across the pond, on the 11th anniversary of the bull market, indices also recorded significant losses, with trading halted shortly after the opening bell as the decline exceeded the first 'circuit breaker' threshold with a drop of 7% for the first time since 1997.

At the close, all major indices were down by well over 7%, with the benchmark S&P 500 closing 7.62% lower, on volume twice the 30-day average, edging ever close to bear market territory, and chalking up its biggest one-day loss since 2008.

Unsurprisingly, all sectors and almost all stocks ended the day in negative territory, with the heatmap being a sea of red yet again.


As a consequence of the steep decline, volatility was once again elevated, with the VIX - a 'fear gauge' for the S&P 500 - hitting its highest levels since January 2009 above the 60.0 handle.


The elevated levels of volatility, and continued fear of the unknown when it comes to the coronavirus epidemic, led investors to continue seeking shelter in the bond market - with Treasuries appearing to be the only true safe-haven amid the present market tumult.

Benchmark 10-year yields capitulated, falling by as much as 40bps on Monday, tumbling to fresh record-lows of 0.31%, before recovering some ground as the day progressed, eventually settling around 20bps lower near the 0.5% handle.

Nonetheless, the recent move in Treasuries has been seismic - of the magnitude normally seen over years - with 10-year yields having halved since mid-February.

Similar losses were recorded across the curve, with 2-year yields declining by 14bps, and 30-year yields falling as many as 40bps (yes, that's really a decline of forty basis points).

The continued steep decline in Treasury yields sees the entire curve now yield less than 1% - and therefore less than the Fed Funds Rate. Furthermore, the bull flattening of the curve - shown in the narrowing 2s10s spread below - shows markets pricing an aggressive path of policy easing from the Fed, and lowering expectations of future inflation.

This expected aggressive path of policy easing was also in evidence in the futures market, where Fed Funds Futures now price a 75bps cut at the March policy meeting as a near-certainty - if delivered, this would mean 125bps of Fed easing in a little over 2 weeks.


Combined, these factors - falling yields and ever-increasing expectations of significant policy easing - exerted significant pressure on the dollar, which lost more than 2% against a basket of peers, ending the day at a 15-month low.

Elsewhere in FX, the majors largely stuck to the traditional defensive playbook, with significant gains for the Japanese yen and the Swiss franc.


The yen rose to its strongest levels in more than 3 years yesterday, printing a 101 handle against the dollar, before a suspicious looking bounce - which had all the hallmarks of central bank intervention about it - saw the JPY pare some of its advance.

Meanwhile, both antipodeans recovered strongly from flash lows seen overnight, with both the Aussie and Kiwi dollars roaring back from 11-year lows against their US counterparts to end the day in positive territory.

Finally, gold prices were relatively subdued, rising just 0.1%, despite the precious metal's safe-haven appeal as investors took profit and liquidated positions to fund margin calls elsewhere.


Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1490 1.2074 1.1368 5.85%
GBP/USD 1.3040 1.3200 1.2725 3.60%
EUR/USD 1.1350 1.1495 1.0777 6.25%
GBP/AUD 1.9915 2.0735 1.9289 6.97%
GBP/NZD 2.0715 2.1449 2.0196 5.84%
GBP/CAD 1.7790 1.8034 1.6973 5.88%

Today's Market Highlights

  • Once again, sentiment around the coronavirus epidemic and its impact on the global economy will remain the primary focus for investors today, with markets continuing to expect a co-ordinated, global, policy response to the fast-moving virus
  • On the data front, the only notable release will be final Q4 GDP from the eurozone, expected to show an unrevised growth rate of 0.1% QoQ, and 0.9% YoY. Barring any major surprises, the data shan't be a market mover, and will only serve to confirm the bloc's sluggish momentum heading into a virus-stricken first quarter of 2020
  • Meanwhile, the central bank speaking calendar is similarly quiet, with the FOMC and ECB now in their pre-meeting blackout periods. Today's only notable speaker comes from the RBA, with Deputy Governor Debelle set to make remarks overnight

Today's Economic Calendar

Time Currency Release Consensus Previous
10.00am EUR GDP (QoQ - Q4 F) 0.1% 0.1%
10.00pm EUR GDP (YoY - Q4 F) 0.9% 0.9%