Market opens gapped down as the Futures Market hit limit down (5% decline) in the overnight session in response to the war on Oil launched by the Saudi’s and the Russians. At one point, Crude Oil was down over 30%. It has since bounced back a bit, but is still sharply lower. Russia decided not to go along with the production cut recommended by OPEC. In response, Saudi Arabia, the largest OPEC producer, decided to flood the Market with Oil by substantially lowering prices and increasing its daily production. This will send a shock throughout the system. Both Russia and the Saudi’s are dependent on higher oil prices to run their economies and cover their budget. Iran does too, and has already been reeling due to the tight sanctions. But back at home, smaller oil producers who are highly levered could face default, which will negatively impact the banks and the credit markets, particularly in high-yield. It’s going to be felt throughout the Global Financial System. All of this on top of the already tense backdrop regarding coronavirus. And North Korea launched some missiles too. There is a great deal of confusion, chaos and uncertainty, and the Market does not like it. Global coronavirus infections topped 110K with Italy announcing containment measures impacting a quarter of its population and more US states declaring emergencies. Bloomberg reports the Trump administration is drafting measures to blunt the economic fallout from the virus, including a temporary expansion of paid sick leave and possible help for companies facing disruption. China reported no new cases outside of Hubei for a second straight day and South Korea said the outbreak is showing signs of slowing. Economic data continues to weaken around the globe. China exports tumbled over January and February, though bearish signals were preceded by record-low PMIs, sharp contraction in Japan Q4 GDP was revised even lower, and German production jumped and exports stagnated in January, but before the impact of coronavirus. Interest rates continue to fall, with the 10-Year Treasury yield hitting new, all-time lows of 0.4%. The 30-Year is also below 1%, touching 0.8% overnight. All of this is happening on the 11-year anniversary of the Bull Market beginning. The Friday, Feb 29 lows are being taken out at the open. Once the Market opens, NYSE circuit breakers will work like this: trading halts for 15 minutes if the S&P 500 falls 7% at any time before 12:25 p.m. Another 15-minute pause is triggered if losses reach 13%. If the decline hits 20%, the Stock Market will close for the day. These were created after the 1987 crash. Today is going to be a day that you will remember for the rest of your career.
Have a great morning,
Mike Frazier
