Declines of -11.49%, -12.36% and -10.97%, these are last week’s performance in the S&P 500, Dow Jones[1] and Nasdaq[2] respectfully. We have not witnessed such an aggressive decline in sentiment on Wall Street over a 5-day period since 2008. The fragility of the U.S. housing market was at the epicenter of the previous episode, this time around it is the ongoing outbreak of the coronavirus.
The anti-risk Japanese Yen[3] stood tall, seeing its best average performance against the US Dollar[4], Australian Dollar[5], British Pound[6] and Euro[7] since June 2016. The Greenback flipped from gains to losses. On the one hand, its haven-linked appeal is an asset during times of market pandemonium. On the other hand, it has room to lose its relatively high yield advantage.
Anti-fiat Gold[8], which is typically associated with a “safe-haven” status, underperformed against all odds. Do not underestimate the premium for liquidity during times like these, of which the precious metal loses out against its fiat competitors. Though in the medium-term, it remains high on historical terms. The yellow metal could have room to benefit from what is appearing to be even looser credit conditions ahead.
Sentiment-linked crude oil prices[9] extended the aggressive selloff from the beginning of this year as the commodity closed at its lowest since the beginning of 2019. The Canadian Dollar[10] likewise largely underperformed this past week. Oil is a key source of revenue in Canada and lower energy prices can exhibit domestic deflationary pressures, perhaps fueling monetary easing expectations.
Central bankers are taking note of the situation, with Fed Chair Jerome Powell alluding to an imminent rate cut[11]
