Virus Anxiety and Oil Price War Upend Markets……

U.S. equities finished sharply lower after resuming trading following a triggered fifteen minute halt nearly right after the U.S. markets opened, as dysfunction on the energy front added another layer of volatility to stymie conviction that has already been elevated amid the accelerated uncertainty regarding the earnings and economic impact of the spreading coronavirus outbreak. More cases in the U.S. have been reported and Italy has deployed aggressive containment measures, while the energy sector’s turmoil was exacerbated by Saudi Arabia launching an oil price war on the heels of last week’s failed production cut proposal by OPEC that Russia rejected. The economic and equity news fronts took a back seat to the focus on the market turmoil. Treasury yields plunged, with the entire yield curve falling below 1.0% for the first time in history during the day, and the U.S. dollar fell, as expectations that the Fed will deploy further rate cuts and potential extraordinary measures have ramped up, as well as the possibility of government fiscal stimulus actions to combat the impact. Gold traded slightly higher. Overseas, both Europe and Asia finished with widespread losses.

The Dow Jones Industrial Average dove 2,013 points (7.8%) to 23,851, the S&P 500 Index lost 226 points (7.6%) to 2,746 and the Nasdaq Composite plummeted 625 points (7.3%) to 7,951. In heavy volume, 2.1 billion shares were traded on the NYSE and 4.5 billion shares changed hands on the NASDAQ. WTI crude oil plunged $10.15 to $31.13 per barrel and wholesale gasoline was down $0.25 to $1.14 per gallon. Elsewhere, the Bloomberg gold spot price was up $3.40 to $1,677.23 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—dropped 1.0% to 94.95.

After gaining last week on the heels of the prior week’s sharpest drop since the financial crisis, the global market turmoil reached a new level with the spreading of the coronavirus accelerating as Italy imposed aggressive measures to try to contain the outbreak and more cases in the U.S. are being reported. Adding another layer of uneasiness, an oil price war is ensuing in the wake of last week’s failure of OPEC’s proposed further oil production cuts that Russia rejected. The failed OPEC proposal prompted Saudi Arabia to announce plans to boost oil output, which is hammering crude oil prices and the energy sector. Credit concerns are also spiking due to the energy sector’s heavy participation in the junk bond market and capital expenditure forecasts for the sector are being eviscerated. The U.S. stock markets had a delayed open due to circuit breakers being triggered to try to stabilize the markets amid the intensified volatility. The plunge in Treasury yields has accelerated, as the entire yield curve moved below 1.0% intraday for the first time in history as expectations are rising that the Fed will announce further cuts to its target range for the fed funds rate and possible other extraordinary measures.

Treasuries saw the recent rally accelerate as the global markets continue to experience heightened volatility, as the yield on the 2-year note fell 11 basis points (bps) to 0.39%, the yield on the 10-year note dropped 13 bps to 0.58%, and the 30-year bond rate tumbled 17 bps to 1.05%. Bond yields cratered, with the entire yield curve falling below 1.0% intraday for the first time in history. The markets responded to the shock in the oil markets, the intensified spreading of the coronavirus across the globe, and increased expectations that the Federal Reserve will deploy further rate cuts and possibly extraordinary measures. This morning, the New York Federal Reserve announced that it will increase the amount of money it is offering to banks for their short-term funding needs.

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