(26 February 2020)DAILY MARKET BRIEF 1: Rush to safety continues

The early optimism in European stock markets was rapidly washed out at the open yesterday. US indices sold off heavily for a second consecutive day. The S&P500 and the Dow closed Tuesday’s session 3% lower, as Nasdaq dived 2.77% on mounting coronavirus worries.

Nikkei lost 0.80% and stocks in Sydney smashed 2.31% as WTI crude slipped to $50 a barrel on expectation that the coronavirus-led fall in demand would heavily weigh on oil prices, especially in the absence of any clear message from OPEC and its allies about if and how they would fight back the market debasement. Saudi Arabia Energy Minister Abdulaziz bin Salman said that the cartel has not run out of ideas to rebalance the oil market, but we can clearly feel that deeper production cuts is a headache for OPEC which has seen its market share falling to a historical low of 35% recently.

Lower market share not only diminishes the impact of cuts on global prices, but also threatens to further shrink the allies’ share of the pie. Even though we believe that OPEC and its allies will further cut production at their scheduled March meeting, the amount and the temporary nature of additional cuts may not result in wished effect and the barrel of oil could stabilize below the $50 mark.

FTSE (-0.82%) and DAX (-1.05%) futures hint at another negative start in Europe. In the dearth of important economic data, investors will continue gauging the impacts of the coronavirus on the economy. We expect to see a bigger crowd of sellers due to the mounting coronavirus crisis in Europe.

Safe havens are in demand. The USDJPY shortly slipped below the 110.00 mark.

By Ipek Ozkardeskaya