THE WALL STREET JOURNAL. **** Wednesday, March 4, 2020 |B13
MARKETS
The coronavirus epidemic
has delivered a jolt to previ-
ously sleepy foreign-exchange
markets.
Currency trading had
mostly been calm in recent
years, as a degree of certainty
about the outlook for U.S. in-
terest rates and other factors,
such as the low cost of insur-
ance against major foreign-ex-
change moves, suppressed vol-
atility.
The fast-spreading virus
has interrupted that equabil-
ity. The Cboe/CME FX Euro
Volatility Index, a measure of
expected turbu-
lence in the dol-
lar-euro futures
market derived from options
prices, has surged 21% over
the past week, extending this
year’s advance to 44%.
The Cboe gauge of implied
volatility in the dollar-yen fu-
tures market has risen even
further, jumping 72% in 2020.
Japan’s yen has moved up or
down an average of 0.44%
against the dollar in the spot
market since the start of Feb-
ruary, according to FactSet, al-
most double the average daily
swing of 0.24% that took place
in the preceding 12 months.
One reason why volatility
has returned: The epidemic
led investors to predict that
the Federal Reserve would
shift course and lower borrow-
ing costs, instead of maintain-
ing rates at current levels.
They were proved right Tues-
day when it cut its target in-
terest rate by half a percent-
age point—the first rate
reduction to take place be-
tween scheduled meetings
since the financial crisis—to
shield the economy from a po-
tential downturn in global
growth.
This change of direction has
upended bets that rates would
remain significantly higher in
the U.S. than in other major
economies.
The gap between expected
borrowing costs in different
economies often, though not
always, dictates moves in cur-
rency markets because money
managers typically seek to in-
vest where they think they can
earn the greatest returns.
“One of the drivers of low
volatility was the expectation
of interest rates from central
banks to be on hold for the
foreseeable future,” said Jor-
dan Rochester, a currency
strategist at Nomura. “Now we
have the potential for central-
bank rate cuts, predominantly
from the Federal Reserve in
the U.S., and this would nar-
row the interest-rate differen-
tial between the U.S. and its
partners.”
As the threat of a pandemic
began to loom last week, stock
markets reeled and econo-
mists slashed their forecasts
for global growth in 2020.
The Bank of Japan, Bank of
England and European Central
Bank have all said they stand
ready to tackle the economic
and financial impact of the
coronavirus.
The Fed has more room to
reduce borrowing costs be-
cause it currently targets a
higher rate of interest than
policy makers in Japan, the
eurozone and the U.K.
Finance ministers and cen-
tral-bank governors from the
Group of Seven countries said
Tuesday they were prepared
to cooperate to guard against
economic risks stemming from
the epidemic, though they
stopped short of stating spe-
cific actions.
With less certainty about
the gap between rates set by
different central banks, option
sellers have pushed up the
price of insuring against cur-
rency moves, Mr. Rochester
said. In turn, that has boosted
the level of implied volatility.
Currency swings have also
become more pronounced in
emerging markets, many of
which are closely tied to
China’s economy through com-
modity exports and supply
chains. Implied volatility for a
basket of emerging-market cur-
rencies has risen 26% in 2020,
according to an index calcu-
lated by JPMorgan Chase & Co.
Still, currencies remain
calmer than stocks. The Cboe
Volatility Index, a gauge of ex-
pected turbulence in large-cap
U.S. equities, has surged 135%
in 2020.
BYJOEWALLACE
Volatility
Surges as
Fo r e c a s t s
Are Upset
CURRENCIES
MGM Resorts’ Bellagio Hotel and Casino in Las Vegas. The company’s shares fell 7% on Tuesday as doubts about the economy hurt travel and leisure stocks.ETHAN MILLER/GETTY IMAGESOne-dayindexperformancefollowingfederal-fundsratecutsSource: FactSetTuesdayOct. 31, 2019Sept. 19, 2019Aug. 1, 2019NasdaqComposite:–3.0%–0.10.1–0.8DowJonesIndustrialAverage:–2.9%–0.5–0.2–1.0S&P500:–2.8%–0.30–0.9Diamondback Energy’s stock price has slumped in recent days. A company site in Midland, Texas.CALLAGHAN O’HARE/BLOOMBERG NEWSOil Prices Pull Back
After Early GainsU.S. crude prices pared most
of their earlier gains Tuesday af-
ter the Federal Reserve’s interest-
rate cut failed to allay investors’
concerns about an economic fall-
out from the coronavirus epi-
demic.
Last week, West Texas Inter-
mediate futures logged their big-
gest one-week percentage drop
since the financial crisis. They
rose Monday and again Tuesday
after the Fed cut its benchmark
interest rate by a half percentage
point in a bid to mitigate the vi-
rus’s hit on the economy.
But by the end of the day,they had trimmed most of their
intraday gains. Brent, the global
gauge of prices, pared all of its
advance from earlier in the day.
U.S. crude prices ended the
day up 0.9% at $47.18 a barrel,
while Brent edged down less
than 0.1% and settled at $51.86 a
barrel.
Although the Fed’s move
could soften potential economic
disruptions due to the virus,
which could help prop up oil de-
mand, analysts had cautioned in-
vestors to expect continued vola-
tility in crude prices.
“While lower rates would
marginally reduce costs of carry-
ing oil inventory, this factor is
modest in relation to the dra-
matic cut in petroleum demand
that is currently being seenaround the world,” analysts at
Ritterbusch & Associates wrote
in a Tuesday note.
The Fed’s move followed an
announcement by finance min-
isters and central-bank gover-
nors from Group of Seven coun-
tries that they were ready to
take steps to contain the eco-
nomic fallout of the coronavirus
epidemic.
Investors are also waiting to
see whether the Organization of
the Petroleum Exporting Coun-
tries and its allies will agree on
further production cuts this week.
Elsewhere in commodities,
front-month gold futures rose
3.1% to $1,642.10 a troy ounce,
their largest one-day percentage
increase since June.
—Sarah ToyFor many, the 10-year Trea-
sury yield breaching 1% and fall-
ing to another record marked a
turning point. Just a few months
ago, traders had expected the
Fed wouldn’t cut rates until the
second half of the year, if it did
at all. Few had thought a sub-1%
yield on the 10-year note was
coming.
But the speed with which ba-
sic expectations about the tra-
jectory of the global economy
have been upended has put
many traders on edge.
“Anything’s possible,” said
Thomas di Galoma, managing di-
rector of rates trading at Sea-
port Global Securities. Mr. di Ga-
loma said he now believes the
Fed could lower rates by another
half percentage point by the
time summer starts.
The rapid fall in Treasury
yields this year has caught many
traders off guard, fueling hedg-
ing activity and forcing investors
that had bet against the govern-
ment-bond rally to close out
their positions, analysts said. At
the start of 2020, the record
closing low was 1.365%, set in- Yields topped 3% as re-
cently as late 2018.
The 2020 bond rally extends
a decadeslong shift in the U.S.
and global economies toward
slower, steadier growth and
lower inflation. The decline in
bond yields has been fueled in
part by demographic shifts and
changes in consumer prefer-
ences or saving rates.
But the 10-year yield also is
widely watched on Wall Street
as a sort of fear gauge, with fall-
ing yields often, though not al-
ways, pointing to acute concernsabout the health of the economy.
Investors tend to snap up gov-
ernment bonds at times of
stress, and the coronavirus has
stressed markets in recent
weeks more than any event in
years. The swings rippling
across markets underscored to
traders how tenuous stocks' re-
cent attempt to recoup their
losses has been.
Even before the stock marketopened, futures had been sub-
ject to big moves up and down—
extending a streak of volatile
moves outside of regular hours.
And reports had shown liquidity
in both Treasurys and S&P 500
futures dropping last week.
Signs of shakiness across
markets have added to the anxi-
ety among traders, many of
whom have struggled to try to
time the market’s moves over
the past week. “I think people
are kind of waiting it out,” said
Mohit Bajaj, director of ETF
trading solutions at WallachBeth
Capital.
The Fed isn’t the only institu-
tion to indicate a willingness to
step in to help arrest a potential
slowdown due to the coronavi-
rus. Earlier, finance ministers
and central bankers from the
Group of Seven countries said
they were ready to use “all ap-
propriate policy tools” to guard
against economic risks from the
coronavirus.
In early trading Wednesday,
South Korea’s Kospi was up
2.2%, Japan’s Nikkei was up
0.4%, but Australia’s S&P/ASX
200 was down 1.3%, Hong
Kong’s Hang Seng Index was
down 0.3% and the Shanghai
Composite was down 0.2%.impact.”
Others are wondering if the
Fed’s action is a signal that they
should be more worried about
the outlook for the global econ-
omy and markets. Mr. Powell
said Tuesday that he believed
the U.S. economy was still on
strong footing.
But some investors were left
with doubt.
“What are they seeing that
we aren’t?” asked Kevin Prel-
oger, portfolio manager at Per-
kins Investment Management.
Reflecting growing doubts
about the economy, stocks tied
to travel and consumer spending
fell, withMGM Resorts Inter-
nationaldown $1.75, or 7%, to
$23.30,Norwegian Cruise Line
Holdingsfalling $1.97, or 5.5%,
to $33.62 andUnited Airlines
Holdingsoff $2.97, or 4.8%, to
$58.29.Continued from page B1Fed Fails
To Calm
Markets
hurt business. Shares ofHalli-
burtonCo. have fallen 16% in
the past five sessions, while
Baker HughesCo. has shed 11%
andSchlumbergerNV has lost
8.6%. TheVanEck Vectors Oil
Services ETF has declined
more than 8%.
Companies that store and
transport energy products
weren’t spared in the market
rout either. Shares ofKinder
MorganInc. have lost 5.7%
since Feb. 25.
Major refining businesses
are also hurting, with shares of
Valero EnergyCorp. andPhil-
lips 66falling more than 12% in
the past five sessions due to
concerns about lower demand
for petroleum products.
Shares of the biggest energy
companies have also fallen in
the past week but generally less
than others in the sector.Chev-
ronCorp. lost 6.3% since Feb.
25, whileExxon MobilCorp.
lost more than 5%.BPPLC and
Royal Dutch ShellPLC have
both fallen more than 3%.
“Some of the larger energy
companies have the balance
sheets to withstand this pe-
riod,” said Kevin Holt, senior
portfolio manager for Invesco
Ltd., which has more than $1
trillion in assets under manage-
ment and owns shares in some
major shale producers.
In fact, he sees the recent
slide as a buying opportunity.
“We were sitting tight until
[Thursday], then we started
buying energy companies,” said
Mr. Holt. “With the coronavi-
rus, we’ve got a group that was
already inexpensive going at
fire-sale prices.”to pull back on crude produc-
tion to ease a global glut and
prop up prices, but few inves-
tors expect a quick recovery.
Net bets on rising crude prices
by hedge funds and other spec-
ulative investors recently hit
their lowest level since October,
according to the Commodity
Futures Trading Commission.
“Energy companies are the
first thing people look to sell in
times like these,” said Rebecca
Babin, senior energy trader at
CIBC Private Wealth Manage-
ment.
Here is how the ripples from
the virus have spread through
energy stocks:
Exploration-and-production
stocks have had a particularly
rough stretch. Shares ofDevon
EnergyCorp. andCimarex En-
ergyCo. have declined more
than 11% in the past five ses-
sions, whileOccidental Petro-
leumCorp. andDiamondback
EnergyInc. have fallen 8% or
more. TheSPDR S&P Oil & Gas
Exploration & Production ex-
change-traded fundhas lost
11% in that time.
Companies providing ser-
vices and equipment to the oil-
and-gas industry are also get-
ting battered by concerns that
sinking demand for crude willContinued from page B1Energy
Shares
Trail S&P
and lasted about two hours.
Customers were left on the
sidelines when the Federal Re-
serve cut rates by half a per-
centage point to combat coro-
navirus fears, roiling markets.
Robinhood said it “experi-
enced an issue with a part of
our infrastructure” that allows
the company’s systems to
properly communicate with
each other. The company
didn’t provide any other de-
tails about the cause of the
outage, though a spokesperson
said no customer data, infor-
mation or funds were lost.
Customers were furious.
Some have demanded compen-
sation; others have said they
plan to take their money else-
where. Robinhood said it
would work to resolve cus-tomer complaints case by case.
Kanak Hyanki was eager to
make a few quick trades Tues-
day morning after being shut
out of the market Monday. The
38-year-old Washington, D.C.,
resident logged in after he got
an email from Robinhood say-
ing service had been restored,
yet he was unable to trade.
“If you’re losing out on op-
portunities like this when the
whole market is going up and
down, then there’s no point of
the commission-free model,”
Mr. Hyanki said. “Frankly, if I
get a chance, I will take my
business elsewhere.”
Robinhood, founded in
2012, has lured millions of us-
ers with its commission-free
trades, smartphone app and
easy-to-use platform. Robin-hood’s popularity has forced
rivalsCharles SchwabCorp.,
TD Ameritrade HoldingCorp.
andE*Trade FinancialCorp.
to eliminate commissions.
Other online brokerages
have experienced brief outages
during the weeklong market
swoon spurred by the worsen-
ing coronavirus epidemic. The
S&P 500 wiped out $3.6 tril-
lion in market value during
the seven-day selloff between
the Feb. 19 close and Friday.
Across social-media plat-
forms throughout the past
week, customers of TD Ameri-
trade, Fidelity Investments
and Vanguard Group have
complained about glitches.
For traders who have
weathered market ups and
downs for years, the outagewas reminiscent of a software
bug that shut down trading of
securities listed on the Nasdaq
Stock Market in 2013. Yet un-
like the Nasdaq incident, the
rest of the world kept trading
on Monday and Tuesday.
Aaron Wang, a 32-year-old
product manager for a soft-
ware startup in San Francisco,
said he tried logging in “every
few moments” throughout
Monday.
He, like other traders,
missed the largest percentage
gain that the Dow industrials
experienced since March 2009.
And they weren’t able to trade
through Tuesday’s volatility in
the wake of the Fed’s an-
nouncement. The Dow swung
more than 1,000 points from
its high to its low.An outage that took down
popular online brokerageRob-
inhood Financial LLC ex-
tended into a second day
Tuesday, locking customers
out of the markets on a wild
trading day.
Shortly after the opening
bell, Robinhood said it was
“experiencing downtime,” as
many of its 10 million users
tried and failed to log in for
the second day in a row. On
Monday, the platform suffered
a daylong outage that left cus-
tomers unable to reap the ben-
efits of a 5.1% rally in the Dow
Jones Industrial Average.
Problems resumed soon af-
ter markets opened TuesdayBYCAITLINMCCABE
ANDSEBASTIANPELLEJEROOutage Persists at Robinhood Online Brokerage Firm