Volatility remained extremely high across all asset classes during Monday.

Volatility remained extremely high across all asset classes during Monday.

Fear over the global economic outlook continued to increase sharply amid major dislocation in Europe and the US and a New York business confidence index dipped sharply.

The Fed rate cut failed to instil confidence as liquidity pressures continued with markets also demanding fiscal action. Wall Street equities failed to sustain a brief recovery with the S&P 500 index registering losses of near 12% as the Dow Jones industrial index registered the sharpest decline for over 30 years.

The US dollar was mixed as liquidity issues persisted with underlying demand still significant despite liquidity injections. Sterling and commodity currencies remained on the defensive as growth fears dominated.

Euro-zone equities remained under sustained pressure ahead of Monday’s New York open with the German DAX posting a decline of over 10%. In an extremely risk-averse environment, there was still underlying dollar demand with EUR/USD unable to hold above 1.1200 and it dipped to lows near 1.1100 at the US open.

The US New York Empire manufacturing index declined sharply to -21.5 for March from 12.9 the previous month. This was well below consensus forecasts, the steepest decline on record and the lowest reading since 2009. Employment declined on the month and expectations also weakened sharply, although remaining just above zero.

There was some positive news from Italy as the number of new cases in Lombardy region hit the lowest level for a week. Italy also approved a decree worth EUR25bn to support the domestic economy, but European restrictions continued to increase. G7 members pledged to implement stimulus measures and co-operate more closely with efforts to increase the availability of medical equipment the top priority.

ECB President Lagarde also stated that the bank is ready to do all that is needed to avoid fragmentation of the Euro area. The dollar was mixed in New York trading amid major volatilities within equities with EUR/USD settling around 1.1175. There was choppy trading on Tuesday with EUR/USD drifting to around 1.1150.

US equities declined very sharply at the Monday New York open with the S&P 500 index halted for 15 minutes after a 7% drop triggered the first circuit breaker. US yields also remained under pressure and USD/JPY dipped to lows near 105.10.

The IMF stated that it was ready to mobilise $1.0trn in loans to help support efforts to combat the coronavirus outbreak with most of the support likely for emerging markets. US equities rallied briefly which pushed USD/JPY to near 106.50 before a retreat back below 106.00 as global stock markets declined sharply once again with extremely high volatility.

President Trump stated that the outbreak could last until August and that recession could be on the horizon while also calling on residents to avoid gatherings of 10 or more people. In response, equities declined further with the S&P 500 index closing 11.5% lower while the Dow Jones industrial index declined 12.9%, the sharpest fall since 1987.

Congress continued to debate a fresh US fiscal package, potentially of at least $750bn. Volatility inevitably remained high in Asia with equities posting net gains which underpinned risk appetite and USD/JPY made net gains, although there was selling above 107.00.

UK equities declined sharply in Europe with the FTSE 100 index sliding to 9-year lows after a slide of over 7%. The spate of earnings warning was exacerbated by sharp declines in the metals and energy complex with Sterling also under pressure.

New Bank of England Governor Bailey stated that the bank will take further prompt action if needed and there were reports that Prime Minister Johnson would discuss further co-ordinated action with the central bank.

Underlying vulnerability surrounding risk appetite remained an important negative Sterling element, especially with the slide in equity markets and fears over international trade volumes. A government shift to curtail social gathering further eroded confidence. Sterling rallied only briefly and there was fresh selling into the European close to 6-month lows with a GBP/USD retreat to below 1.2250 while EUR/GBP pushed back above the 0.9100 level. The government is likely to introduce further support measures on Tuesday, but the currency remained on the defensive as GBP/USD traded below 1.2250.

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