Diary of a private investor during a week of carnage for global markets

Richard Hunter kept a commentator’s diary during last week’s coronavirus-driven volatility.

Over the weekend of 7/8 March, talks broke down between OPEC, Saudi Arabia and Russia signalling the start of a potential price war. By early Monday morning, the oil price was down 25% and for the markets, which had already been teetering given the potential economic impact of the coronavirus, it was a step too far. Investors rushed for the hills.

- Coronavirus: will markets fall further, and should I buy, hold or sell?
- How bad could a coronavirus recession be for the global economy?
- Four tips for investors in tough markets
- Investors are buying the dip: will it work this time?

Monday 9 March

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At investment platform interactive investor, we noted on the day: “The confluence of events which has led to today’s declines are a bitter pill to swallow, but also a reminder that dynamic markets are by their nature prone to volatility. On a year to date basis, the FTSE 100 has lost over 20%, thus representing a move into bear market territory.

“At the same time, China has confirmed that its exports fell by over 17% during January and February; even if the virus is showing signs of stabilisation both there and in Korea, concerns have now switched to the impact in both Europe and the US. At best, it seems that the first quarter is likely to be something of a write-off in economic terms, and as the weeks tick by this could well flow into the second quarter as well. US indices, already hit today by circuit-breakers in its own futures market, are therefore also likely to open sharply lower which could continue the domino effect.

“Certain sectors will have been caught in the crossfire of the souring sentiment, even though the fundamentals of those businesses have not changed overnight. It is impossible to call the bottom in markets such as these and difficult to anticipate positive catalysts, but turmoil such as this can provide buying opportunities. Indeed, that particular message seems to be resonating with our customers – around 90% of those who have decided to trade today are buyers.

“Markets will now be hoping for a coordinated turbocharge from the central banks, which, given the decreasing lack of firepower for most given the stimulus measures already introduced, could have limited effect. However, if it is accompanied by a pledge from governments to add fiscal stimulus into the mix, the combined statement of intent could well underpin market sentiment.”

Tuesday 10 March

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There was something of a relief rally on Tuesday, as some bargain hunters were temporarily tempted back into the market.

Timing worked against the FTSE 100, which opened strongly and then fell back as US markets erased previous gains. After the close of the UK market, however, the US indices recovered some poise, such that the FTSE missed out on any gains for the day.

Wednesday 11 March

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A 7am announcement from the Bank of England took markets by surprise, as a 0.5% interest rate cut was implemented ahead of the Budget later in the day.

During the Budget, fiscal stimulus was announced to complement the earlier monetary boost, in a coordinated effort which had not been echoed by other governments/central banks. But despite the plaudits the move received, any gains from the Tuesday were erased as nervousness returned.

Thursday 12 March

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The worst day of the week by a distance, following on from a US travel ban for those travelling from Europe, dealing another blow to the tourism and travel sectors in particular.

Again, we noted at the time: “These are unquestionably dark days for investors. The latest pronouncement from the US has exacerbated the sour mood, with a travel ban from Europe dealing another blow to the beleaguered tourism and travel sector. At the same time, the lack of any specific positive measures in the update has given markets an additional and unwelcome hit to factor in to share prices.

“Notable by its absence at the moment is any good news. The coronavirus has yet to peak, the oil price is under renewed pressure (although this may prove positive for consumers in the medium term) and only a fraction of the eventual economic cost has been confirmed, even though a growing number of companies are valiantly trying to put a figure on the hit to their earnings. Meanwhile, there is nowhere to hide, with even the traditional haven of gold in negative territory today.

“Sellers are pushing against an open door, and the situation could unfortunately get worse before it gets better. Hours ahead of the open, Dow futures have already hit the ‘limit down’ circuit breakers, which suggests that another traumatic day is in the offing.

Even interactive investor customers are buying with less conviction. Of those choosing to trade today, 75% are buyers, which compares to the initial falls on Monday this week where the figure was 90%.

These factors will put additional pressure on the ECB to deliver an economic and psychological boost in their announcement later today, although even a coordinated fiscal and monetary response as displayed in the UK yesterday is no guarantee of stemming the downward tide.

If there is a glimmer of hope, it is that there will have been certain sectors caught in this crossfire which will have simply been oversold. Such businesses, whose fundamentals will not have changed overnight, will potentially lead the charge as and when sentiment improves. For the moment, however, matters need to stabilise at a macro level before any sort of market recovery can be entertained.”

And for those of a superstitious nature, we had not even reached Friday 13th yet.

Friday 13 March

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Friday actually turned out to be the best day of the week, although yet again the FTSE 100 missed out on the strongest gains, largely giving up a strong start. The constituents of the index, such as oils, miners, airlines and tourist companies, let alone those with a focus on Asia (Burberry, HSBC, Standard Chartered, Prudential and so on) make the UK’s premier index particularly vulnerable.

Our final thought of the week was guarded: “Today’s relief rally of over 8% for the FTSE 100 is a welcome change from yesterday’s near-capitulation, and with Dow futures currently indicating a 5% (1100 points) increase on the open, the increasing provision of liquidity from the central banks (latterly in the US) has repaired some of the soured sentiment.

“That being said, the FTSE 100 still remains down over 12% for the week and, as such, it is too early to hang out the bunting. The economic impacts of the coronavirus are yet to be accurately quantified, the oil price trade war remains a concern (although this is also staging something of a recovery today) and the prospect of a global recession cannot be discounted as yet.

“It is likely that until at least one of those concerns is properly addressed, markets will continue to be volatile, especially near-term.”

Summary moves for the week

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Having experienced first-hand the previous challenges of the 1987 crash, the dot.com bubble and burst of 1999/2000 and the global financial crisis of 2008, this bear market was notable by the sheer velocity of its arrival. The financial system itself is not in doubt, but the eventual impact on the global economy remains impossible to predict. The volatility is not over yet.

PS Despite a coordinated effort the following weekend by central banks including the Fed, the ECB, the Bank of England and the Bank of Japan amongst others – and a massive $700 billion stimulus programme from the US – investors remain unconvinced.

Confidence, like trust, takes a long time to build but next to no time to destroy.