The dislocation caused by widespread restrictions on movement continues to reverberate around global markets and overwhelm policymaker responses. The S&P 500 was down 5.2% on Wednesday, while the Euro Stoxx 50 closed 5.7% lower and the Hang Seng fell 4.2%. Even safe havens were not immune, as many investors sold liquid assets to meet other obligations. Gold fell 2.8% and US Treasuries remained under pressure. The yield on the 10-year Treasury has climbed to 1.2% from 0.65% on Monday. The VIX volatility index closed at 76.
The tide of negative developments on the virus also continued, with news that global infections had risen above 200,000 and the number of deaths had climbed above 8,000. The number of new cases in Hong Kong also climbed, raising fears of a renewed spread of COVID-19 in Asia. Measures to contain its spread also intensified. Australia announced it would restrict gatherings and overseas travel. Nevada, home to Las Vegas, has shut its leisure sector, which accounts for a quarter of jobs in the state. Detroit’s three main US carmakers agreed to close their US factories. The US and Canada closed the border to non-essential traffic.
In the near term, we think markets are focused on two things: 1) whether central banks are moving quickly to get in front of the dislocations in financial markets and ensuring the liquidity necessary to meet the deleveraging; and 2) whether fiscal policymakers can deploy the necessary tools to mitigate job losses and bankruptcies in the event of the expected continued rise in the infection count, and shutdowns persisting for more than a few weeks.