Markets haunted by Covid-19

Market report Michael Blumenroth – 09.03.2020

Weekly market report

The coronavirus, now officially called Covid-19, is increasingly worrying markets due to its unavoidable consequences for the global economy. Although we are seeing a steady stream of counter movements and recoveries, especially on the stock markets, the world’s leading indices (bizarre, but true: with the exception of the Shanghai stock exchanges) are now clearly in the red for the year 2020.

Fed rate cut fuels uncertainty

On the other hand, the prices of top-rated government bonds have risen considerably over the course of the week, due to investors’ search for safe havens. The yield / market interest rates of 10-year Treasuries dropped from 1.92 per cent at the beginning of the year to an almost unbelievable record low of 0.81 percent. The yield on ten-year Bunds is also very near all-time lows. The highlight of the week was the unscheduled Fed meeting, in which key interest rates were cut by a full 50 basis points. If this step was intended to calm the markets, it backfired on Tuesday. The markets interpreted the measure as panic-driven, further adding to concerns. Australia and Canada, among others, also cut interest rates.

Gold regains momentum

It was thus obvious that gold, alongside government bonds and the yen, was also in demand as a safe haven. Following last Friday’s lows, the gold price achieved its biggest weekly gain since 2016 and currently trades approximately 2.5 per cent higher week-on-week. Last Friday, as a number of market participants apparently sold gold positions to counteract losses in other markets, the gold price plummeted from 1,630 to 1,563 $/ounce. By the end of the week, gold traded around $1,585/ounce but recovered on Monday, when it peaked above the 1,600 $/ounce mark. Following the surprising Fed rate cut, the precious metal jumped to 1,640 $/ounce on Tuesday afternoon, and even higher last night to 1,680 $/ounce. It currently trades at 1,673 $/ounce.

Xetra-Gold gains modest due to strong euro

The Fed interest rate cut caused the US dollar to weaken significantly. Last night, the euro rose to its highest level since August 2019, which (slightly) slowed the rise of Xetra-Gold, which initially receded from 47.50 €/gram last Friday morning to 45.90 €/gram on Monday afternoon within regular trading hours. Since then, however, it recovered to an expected 47.85 €/gram at the start of trading this morning.

Uncertainty about the economic consequences of the coronavirus is currently dominating the markets. As long as the all-clear has not been given, safe havens will probably remain in demand. The markets are now looking towards the meetings of the ECB next Thursday and the Fed on 18 March.

I wish all our readers a relaxing weekend.

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