By Eliman Dambell
Many of us would have heard the stories of the infamous Black Monday crash in 1987. With some of us old enough to be personally affected by the crash. We’ve seen numerous movies and TV shows all recapping that historical day, which saw index markets globally fall as much as 20%+ in a single day of trading. Currently with the market in the eye of the storm with regards to COVID-19 and no real path to solving the problems caused by the Coronavirus, we are seeing the level of panic levels begin to reach those levels once more.
Yesterday, the 9th March 2020 was a historic one, as we saw Oil, Gold, the SP500 and many indices around the world experience big moves. Oil dropped by over 20%, the FTSE dropped by 8%, Gold reached a price of $1700, a level it hasn’t reached since the end of the crash of 2008. We saw several exchanges issuing limit down orders, where trading was halted in order to regulate the flow of orders. Essentially yesterday, saw markets at levels of volatility not common, and as such traders were flocking at the chase to be a part of momentous moves.
So what caused all of this? The Coronavirus itself is the main culprit, however the human reaction to the situation is what has really created a sense of hysteria. In Italy we saw the government firstly introduce fiscal stimulus to help ease the panic. Mainly of businesses who were suffering losses of revenue, to the tune of 25% and above. This had little impact, and the spread of the virus, led to a second stage, where the northern section of the country was under quarantine, and finally the whole country has now been placed in a form of self isolation. Italy is important because it is now the 2nd largest country impacted by the virus, with close to 10,000 people infected, with over 500 reported deaths.
With the situation now firmly in Europe, markets like the FTSE and the DAX have all suffered. The FTSE reached its lowest point since January 2016, essentially wiping out 4 years worth of gains in value, since the beginning of the year, when news of the virus first began to spread. The below chart has ultimately been the image many investors in long term assets have been seeing, with many unable to hold onto their positions due to growing losses.
Commodities have been the most volatile, usually this statement always rings true, due to the array of factors which impact commodity prices. The price war with OPEC, in particular the Saudi’s and Russia was the latest catalyst. With demand for Oil fading as the Coronavirus has meant global travel and tourism has slowed, prices had been suffering. On Monday, the decision came that the best solution for a low price, was to make the price even lower, meaning that the demand could grow, as prices were slashed. Whether this works will be determined, however the below chart shows the scale of the decline.