The Bear is Back | Flow Traders Investment Competition | Week 21

Yet again, the global financial market this week was dark and full of terrors. The Dow Jones plunged lost over 4000 points (-17.3%), whereas the S&P 500 fell by more than 400 points (-14.5%). Trading was fueled by the expiration of options and futures contracts on stocks and indexes. WTI crude oil tumbled $3.28 to $22.63 per barrel and wholesale gasoline was down $0.08 at $0.61 per gallon. Elsewhere, the Bloomberg gold spot price rose $21.06 to $1,492.30 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 102.75. The European STOXX Europe 600 Index fell 1.85%. Germany’s Xetra DAX Index slipped 3.56%, France’s CAC-40 Index declined 2.51%, and Italy’s FTSE MIB Index dropped 0.4%. The UK’s FTSE 100 Index slid 2.78%. Japanese stocks produced mixed returns in the holiday-shortened trading week. The Nikkei 225 Stock Average declined 878 points (-5.0%) on Thursday and closed at 16,552.83, down 30.0% for the year-to-date period. The drawdown was the most intense on Monday, with the Dow suffering its biggest percentage loss since 1987 and the Nasdaq Composite Index experiencing its largest daily decline ever. These declines, and also on Wednesday, again triggered “circuit breakers” designed to keep trading orderly.

On the monetary front, global central banks around the world opened the floodgates with extraordinary measures to combat the stress in the financial markets. The FED imposed measures that also have been deployed in the 2008 crisis. The New York Fed also announced that it would start with $500 billion in overnight repurchase operations (repos) twice a day for the rest of the month, in addition to its previously planned operations. The ECB announced that it will launch a new “Pandemic Emergency Purchase Programme” (PEPP) to stimulate the economy. This package includes the use of 750 billion euros purchase financial assets, both private and public sector bonds, and commercial paper. Likewise, the BoE cut its benchmark interest rate to 0.10% and said it will increase its bond-buying program by 200 billion pounds. The moves came after strict measures were put in place after officials at the World Health Organization indicated that the region has become the new epicenter of the outbreak.

Economic news was overshadowed by the massive events that took place, but some data gathered in the midst of the beginning stages of the outbreak showed marked declines in manufacturing activity in the New York and Philadelphia regions, as well as a jump in jobless claims to its highest level since September 2017. New economic forecasts, for example on GDP and initial jobless claims, indicate that the U.S. is entering a phase of deep economic recession. The economic releases of this week will be overshadowed by the continued uncertainty again, however still adds new information on the state of the economy. Some important releases for this week are the Markit manufacturing and services PMIs, weekly initial jobless claims and the consumer sentiment index by the University of Michigan. Other reports, looking back to February, are new home sales, durable goods orders and final Q4 GDP in the US. Internationally, the Tokyo CPI, Eurozone consumer confidence, Eurozone IFO Business Climate Survey, German consumer sentiment, and UK CPI and PPI are worth paying attention to. 

It was a rollercoaster of a ride for the global markets in a week that saw severe daily whipsaws in both directions, as well as record intraday volatility. Most investment groups, this week, also got their share of the rollercoaster. On the throne, we have Concordia International reading a M2 of 12.44%, closely being followed by Next Generation with a M2 of 11.58%. Both groups are the only groups with positive M2 so far. Our biggest riser, this week, is Liquid Gold with a rank change of 25, whereas, the Quants of Minerva experienced the biggest rank drop (-12).

Amar Soebhag