The Wall Street Journal - 19.03.2020

THE WALL STREET JOURNAL. ***** Thursday, March 19, 2020 |B11

MARKETS

The index has now lost 33% since its February record in just over a month—24 sessions. “It’s happening so fast, it’s almost too much to grasp at this point,” said Frank Cappel- leri, the executive director at Instinet. “It’s at the point where if you check the futures at nighttime and you’re not limit-down, it’s a relief.” The market’s losses are ac- celerating as the pandemic es- calates. The number of infec- tions globally crossed 200,000, more than doubling in just two weeks. Travel has ground to a halt and more busi- nesses are temporarily closing. Governments are asking citi- zens abroad to come home and those already at home to stay there. Detroit’s Big Three auto makers—General Motors, Ford Motor and Fiat Chrysler Auto- mobiles—agreed Wednesday to temporarily shut down their U.S. factories, The Wall Street Journal reported. The S&P 500 has now risen or fallen at least 4% in eight consecutive sessions, the longest streak in history, according to Dow Jones Market Data, breaking a streak of six days during the 1929 market crash

Continued from page B1

Also, many countries, such as Russia, Brazil and Indonesia, are reliant on natural-resource exports, whose prices have cra- tered, both because of the eco-

nomic slowdown and the Saudi- Russia oil-price conflict. “What we’re experiencing here is the double whammy,” said Warren Hyland, an

emerging-market portfolio manager at Muzinich & Co. in London. “If we just had the virus, the markets would be more relaxed but you have a

The British pound fell to its
lowest level against the dollar
in 35 years, a reflection of the
U.K. economy’s exposure to the
disruptions ripping through the
global economy because of the
coronavirus pandemic.
Sterling has fallen rapidly in
recent days, dropping another
4.2% against the dollar to $1.15
Wednesday. It has lost more
than one-tenth of its value this
year, according to FactSet.
The move brings sterling to
its lowest level since March

Later that year, the
world’s richest nations signed
the Plaza Accord, which weak-
ened the dollar, pushed up
other currencies and brought
the U.S. economy out of a re-
cession.
The pound is being caught
up more generally in a flight to
dollars that is affecting all of
the globe’s major currencies.
The dollar has strengthened
against the yen, Swiss franc and
euro in recent days.
But the rapid slide in what
remains one of the world’s re-
serve currencies held by central
banks is being hastened by
fears that the freezing of the fi-
nancial system will upend the
steady flow of capital from
abroad that the U.K. economy
relies upon.
The U.K. runs a current-ac-
count deficit and needs foreign
investment to keep its financial
system healthy.
“We’re likely to see the cur-
rent accounts deteriorate,” said
Jordan Rochester, a currency
strategist at Nomura. “Inves-
tors who usually plug the gap
aren’t filling it in now.”
Investors have also started
to pull back speculative posi-
tions they had placed earlier
this year betting the pound
would rise in value.
Coming into 2020, sterling
seemed likely to benefit as un-
certainties around Britain’s
withdrawal from the European
Union subsided after Prime
Minister Boris Johnson won a
sweeping majority in Parlia-
ment.
Since then, the spread of the
coronavirus globally and efforts
to contain it have led investors
to question the economic
growth outlook for the U.K. and
other countries, and those who
cheered on the pound’s appreci-
ation are now pulling back. Mr.
Rochester said he expects the
market has now moved to bet
on a further depreciation in
sterling.
The rise of the dollar has
been the largest drag on the
pound, said Paul Robson, head
of G-10 currency strategy at
NatWest Markets. TheICE Dol-
lar Index, which measures the
greenback against a basket of
currencies, climbed 1.9%
Wednesday, and was up 5.3%
for the year.
“There just seems to be a
scramble to buy dollars and
that’s just making the fall in
sterling more than just a ster-
ling story,” Mr. Robson said. “It
feels like sterling is doing bad
against lots of currencies, but
it’s mainly against the safe-ha-
ven currencies.”
The future of Brexit talks is
adding another layer of pres-
sure to the pound, as the EU
and U.K. have put off face-to-
face negotiations because of
coronavirus fears.

BYCAITLINOSTROFF

Pound

Falls to

35-Year

Low Point

virus times an oil war and that combined effect is really what broke the market.” Among the biggest losers: Brazil’s Bovespa stock-market benchmark is down 36% so far this year, India’s S&P BSE Sensex benchmark has lost 26% and the MOEX Russia Index has dropped 27%. Major emerging-market currencies have fallen against the U.S. dollar, compounding the pain for investors. The Russian ruble, Brazilian real and Mexican peso have all fallen more than 10% against the dollar this year. In dollar terms, the Brazilian benchmark is down 48% for the year, In- dia’s Sensex is down 29% and Russia’s MOEX has dropped 40%. Bond markets have felt the pain, as emerging-market yields have risen sharply. Bond prices fall when yields rise. The average yield on an index of dollar-denominated emerging-market external debt has blown out in recent days to its widest level to comparable Treasurys since the crisis, according to an ICE BofA emerging-markets sovereign-bond index. Borrowing costs are now more than 5 percentage points above comparable U.S. government bonds, compared with just over 3 percentage points four weeks ago. Difficulty in trading emerging-market bonds has put strains on the market. Shares in the $12.7 billion iShares J.P. Morgan dollar emerging-markets bond ETF is- sued by BlackRock, for exam- ple, traded at 96% of net asset value on Tuesday, according to FactSet data. Such a discount is unusual and indicates investors are selling the fund faster than the fund can unload its hold- ings.

The selloff triggered by the pandemic is ripping through emerging markets, as investors suck money out of riskier cor- ners of the globe. Foreign investors are pulling money out of emerging economies, in places such as India, China, Brazil and Russia, at the fastest pace on record, according to the Institute of Interna- tional Finance. Some $55 billion has flowed out of stocks and bonds in countries in the nearly eight weeks since coronavirus jitters began spreading in markets in January. That is more than double the pace of withdrawals even during the worst stretch in the 2008 financial crisis and equivalent to more than 1% of gross domestic product of the countries mea- sured. On Tuesday, the Philippines shut its stock exchange indefi- nitely in response to several days of heavy selling. Like many emerging markets, its financial system relies heavily on inflows from foreign investors, which have dried up. Theoutflowsareastarkre- versal from recent years, when investors poured money into emerging markets hunting for higher returns. Those bets were fueled in part by so-called carry trades, where investors borrow in low-yielding currencies like the euro and the yen to roll the funds into a higher-yielding asset, such as Mexican or Brazilian bonds. Those bets are now unwinding at a furi- ous pace. There are several factors weighing on emerging markets. A stronger U.S. dollar generally causes financial conditions in emerging economies to tighten, limiting credit to parts of the economy that need it most.

BYAVANTIKACHILKOTI

Haven Search Deals Blow to Emerging Markets

Yield to maturity on the benchmark emerging market sovereign bond index†

12

0

2

4

6

8

10

%

2008 ’10 ’12 ’14 ’16 ’18 ’20

TRADING DAYS AFTEREACH EVENT

Global financial crisis Sept. 8, 2008

China scare Sept. 26, 2015

Covid-19 Jan. 21, 2020

Sources: Institute of International Finance (outflows); Factset (net asset value); JP Morgan (yield)

*As of Tuesday †As of March 11

Cumulative outflows from emerging markets by nonresident investors in the days following a major risk event $0

–60

–50

–40

–30

–20

–10

billion

010 2030405060708090

iShares JP Morgan USD Emerging Markets Bond ETF, price as a percentage of per-share net asset value* 102

94

96

98

100

%

2011 ’13 ’15 ’17 ’19

The volatility has thrown the market’s “risk on” attitude into sharp reverse. A month ago, stocks were hitting new re- cords daily as investors bet on a rebound in corporate earn- ings. A week ago, investors were debating whether the pandemic would cause a recession. Now, the question is whether the economy will be thrown into its worst recession in decades. Wednesday’s selloff kicked off overseas. The pan-continen- tal Stoxx Europe 600 index fell 3.9%, hitting its lowest level since June 2013. Most major Asian markets closed lower, with Hong Kong’s Hang Seng Index falling 4.2%. Stocks continued falling early Thursday. The Hong Kong

benchmark was down a further 4%, while Japan’s Nikkei Stock Average was down 0.7% at mid- day. The volatility of recent days in the U.S. government bond market continued, with investors snapping up short-term government bonds that are the closest equivalent to cash: the yield on 1-month Treasury bills fell as low as -0.033% from 0.08% Tuesday, according to FactSet, trading in negative ter- ritory for the first time since

In the afternoon, it rose

back to a positive 0.018%. In commodity markets, U.S. crude futures plunged 24% to $20.37 a barrel, the lowest level since early 2002 as Saudi Arabia and Russia forged ahead with plans to raise output in their continued price war. The demand for oil is also likely to drop as authorities globally es- calate emergency measures to curtail the spread of the virus. Brent crude, the global benchmark for oil prices, fell 13%. Markets remain jittery de- spite a series of measures taken by central banks. In recent days, the Federal Reserve has slashed rates and extended terms on emergency loans to banks borrowing from its discount window, relaunched a financial-crisis-era commercial paper tool, and ensured dollars were available internationally via swap lines with five major central banks. Those interventions show that the markets are having a hard time just functioning nor- mally, said Shawn Snyder, head of investment strategy at Citi Personal Wealth Management. And no amount of fiscal or monetary stimulus can provide the one thing everybody wants to know, he said. “Neither one can stave off infection,” he said. Economists are slashing growth forecasts, with some warning the coronavirus will trigger a global recession. Deutsche Bank said gross domestic product could shrink 24% in the eurozone and 13% in the U.S. in the second quarter on an annual, seasonally ad- justed basis—declines that would be the biggest in re- corded history.

Market’s

Swoon Hits

All Assets

WEDNESDAY’S MARKETS

30000

9000

0000

000

3000

4000

5000

6000

7000

8000

9000

March

Point contributions of Dow Jones Industrial Average components to the index’s decline from its Feb. 12 record close

Source: Dow Jones Market Data via FactSet

Middle 19 contributors –5,454.8 pts.

Five largest contributors –4,049.6 pts. Boeing –1,665.4 Goldman Sachs –668.9 UnitedHealth –586.1 Home Depot –583.0 Apple –546.2

Five smallest contributors –193.8 pts. Merck –78.8 Procter & Gamble –40.7 Pfizer –36.5 Verizon –26.5 Walgreens Boots Alliance –11.3

Wednesday 19898.92 ▼9,652.5pts. since record

Bearmarket

Correction

Feb. 12 record:29551.42

Walmart +45.6 pts.

The Dow has lost 33% since its February record in just 24 sessions.

The New York Stock Ex-
change will close its famed
trading floor in lower Manhat-
tan effective Monday after two
people who work at the ex-
change tested positive for coro-
navirus.
The NYSE’s parent company,
International ExchangeInc.,
or ICE, said it was temporarily
closing the floor and shifting
to all-electronic trading in a
press release Wednesday.
ICE “will continue to moni-
tor events to determine the
appropriate time to re-open
the NYSE trading floors,” it
said, describing the move as a
precautionary measure.
The two individuals who
tested positive for coronavirus
were denied entry to the NYSE
building this week after they
failed to pass mandatory

screening procedures, and they later tested positive for Covid-19, according to an internal memo circulated to NYSE floor traders on Wednes- day. One of them was a “member of the floor trading commu- nity”—a term usually used to describe the brokers and traders that work on the floor— and the other was an NYSE employee, said the memo, which was reviewed by The Wall Street Journal. Both were last in the NYSE’s building on March 13, the memo said. The next day, NYSE carried out a deep-cleaning of the floor, which has continued to operate this week. Investors will likely see little impact to the markets from the closing of the floor, which plays a far less important role in the U.S. stock market than it

did 20 years ago. The NYSE has a backup plan to operate in an all-electronic mode, without human traders on its floor. The NYSE had resisted closing down the floor—a key part of its brand and image—even as other exchanges around the

U.S. and abroad had shut their trading floors, and officials had warned against gatherings of large groups of people. Futures-exchange giant CME GroupInc. and options- exchange operator Cboe Global MarketsInc. said last

week that they would close their trading floors in Chicago to help combat the widening pandemic. Nasdaq Inc. closed a small options trading floor it runs in Philadelphia this week. Overseas, the London Metal Exchange is also preparing to close open-outcry trading as coronavirus spreads in the U.K. Some of NYSE’s competitors had criticized the decision to keep the floor open. “We believe all exchanges should be able to run electron- ically in this day and age, thereby not unnecessarily put- ting people at risk in this envi- ronment,” Tal Cohen, head of U.S. markets at Nasdaq, said in an interview earlier this week. NYSE said in response that it had taken various measures to combat coronavirus, includ- ing deep-cleanings of its facili- ties and mandatory tempera-

ture checks for floor traders arriving for work. NYSE will also close two options-trading floors it runs in New York and San Francisco, ICE said in Wednesday’s statement. The closure will mark the first time that NYSE’s floor has been forced to shut down since superstorm Sandy caused it to close for two days in October 2012, as part of a broader shutdown of the U.S. stock market. The NYSE has closed its floor around half a dozen times since the late 19th cen- tury due to emergencies such as blizzards, hurricanes, the 1977 New York City blackout and the 9/11 terrorist attacks. The exchange’s longest closure, lasting about four months, came during the outbreak of World War I in 1914.

BYALEXANDEROSIPOVICH

NYSE to Temporarily Close Trading Floor

Investors will likely see little impact to the markets from the closing.

LUCAS JACKSON/REUTERS

The Wall Street Journal - 19.03.2020

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