Dramatic Investor Adjustment Continues

Overview: The warning by the US Center for Disease Control and Prevention that Americans should prepare for an outbreak of Covid-19 sent the S&P 500 tumbling to an 11-week low and the 10-year Treasury yield to a record low near 1.30%. The volatility of the S&P (VIX) jumped to its highest level since 2018. The sell-off in global equities continues unabated. Thailand (-5%) and Australia (-2.3%) led the carnage in the Far East. The MSCI Asia Pacific Index was sold through its 200-day moving average yesterday, and the Dow Jones Stoxx 600 did so in early morning activity today after gapping lower. However, as the morning progressed, the benchmark was paring its losses and moved back above its 200-day moving average. US shares have pared their earlier losses. The 200-day moving average is at a couple of percent lower near 3045. Bond yields are not responding as strongly to the fifth consecutive losing session for global equities as they did previously. Most core yields are slighter softer, while the European peripheral bonds are being shunned like risk assets, and yields are mostly 3-5 bp higher there. The US 10-year is near 1.33%. The dollar is mixed, but firm against most of the major currencies, but the Swiss franc and the euro. The Australian dollar and sterling are the weakest so far today, off about 0.4%. The JP Morgan Emerging Markets Currency Index is trading at new multi-year lows, led by the South African rand, Korean won, and Mexican peso. Gold, which counter-intuitively fell yesterday (~-1.5%), is back on track, gaining around 1% today. Demand concerns and rising US inventories have pushed April WTI briefly below $49 a barrel.  

Asia Pacific

There has been a dramatic market reaction in the last few days, but as recently as this past weekend at the G20 meeting, the IMF seems to naively in denial. It shaved its 2020 world growth forecast by 0.1%. Given the accuracy of private and public sector economists in forecasting GDP, a 0.1% adjustment gives a sense of precision that is not justified. The IMF also shaved its forecast for China by a little more, but at 5.6%, it is still unreasonably high. It said it was looking at more dire scenarios. 

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Read more by Marc on his site Marc to Market.

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