13.03.2020 – Daily Report. The day after, the first courageous bulls show up on the Frankfurt parquet again. Around noon the DAX rises. A little relief for the mowed down long investors after the strongest crash on the German stock exchange in over 30 years. The magic word everyone is waiting for is “stimulus”.
Investors dare the rebound
German investors are again trying to find the bottom: The DAX rose by 3.4 percent to 9,471 points on Friday afternoon. The recovery was pushed forward by US futures, which rose by almost 5 percent.
Yesterday, the German leading index plunged 12.2 percent to 9,161 points. This was the first time since 2016 that the indicator closed below 10,000 points. Since the beginning of the corona crash on February 24th, the German leading index has lost a good 30 percent of its value.
Strongest daily decline since 1989
Yesterday, Thursday, the DAX recorded the second largest percentage daily loss in its history. The “Frankfurter Allgemeine Zeitung” clarified the situation: 1988 was the wedding day for leveraged buy-outs in the USA – i.e. company purchases on credit. Junk bonds were often used to buy companies. On Friday, October 13, 1989, the bubble on Wall Street burst when it became known that the takeover of United Airlines had failed. The following Monday, the DAX fizzled down 12.8 percent.
Hope for US stimulus
Hope now rests on politics: House Speaker Nancy Pelosi of the Democrats said last night that the House of Commons and the Trump administration are close to an agreement on financial aid. A vote on this could be scheduled for this Friday. “We have – are near – to an agreement,” Pelosi said. So all traders should pay attention to the news: If the aid package is convincing, the cops are likely to storm the floor.
Attack on the Shorties
Meanwhile, the stock markets tried to quench the fire of panic with short selling. Thus, on Friday, the London Stock Exchange imposed a short-selling ban on Italian and Spanish shares. The Borsa Italiana followed suit, as did the Spanish stock exchange. South Korea also announced a ban on short selling, which will apply for six months starting next Monday. Deutsche Börse declared on Friday that it would not impose such a regulation. But what is not, can still become.
Asia resists the sell-off
Meanwhile, the Bank of Japan is pumping additional liquidity into the market with further bond purchases. In an unscheduled action, the Bank of Japan has offered to collect bonds of up to 200 billion yen, or around 1.7 billion euros. This was against the backdrop of the Tokyo sell-off: the Nikkei closed 6.1 per cent lower at 17,431 points – the first time since November 2016 that it had fallen below 18,000 points.
Meanwhile, the CSI-300 in China fell by 1.4 percent to 3,895 digits. In South Korea, which is particularly hard hit by Covid-19, the Kospi index lost 3.4 percent to 1,771 digits. In Asian trading, several stock exchanges had stopped trading on Friday, CNBC reported: India, Japan, South Korea, Indonesia, Thailand and the Philippines.
US shares with a historical crash
Previously, panic had raged on Wall Street. The Dow Jones Industrial had slumped 9.99 percent to 21,201.62 points the previous evening. According to MarketWatch, this was the worst crash since “Black Monday” on October 19, 1987, when the Dow plunged a staggering 22.6 percent. At that time, a toxic cocktail of inflation, rising deficit and a rate hike hit the market.
Yesterday, the Dow slid to its lowest level since mid-2017, and shortly after the starting bell, trading had to be temporarily suspended, as it had been at the beginning of the week. The S&P 500 lost 9.5 percent to 2,481 points on Thursday and the high-tech index Nasdaq 100 dropped 9.3 percent to 7,264 points.
Fed fires $1.5 trillion into the market
Meanwhile, the Federal Reserve is providing the banks and funds with a gigantic cash injection. In order to prevent the collapse of large investors, it is shooting down the bazooka: The New York Fed, which is responsible for the overnight repo market, wants to provide a total of $1.5 trillion in liquidity in several auctions. It also wants to buy up a wide range of government securities. In times of corona panic, nothing would be more devastating than an additional financial crisis with financial institutions toppling over. But here, too, the rule of thumb is: what is not, can still happen. Incidentally, yesterday’s announcement did not support the stock market – the market is hoping for the Fed to buy shares directly.
The panic record has not yet been reached
Whether the crisis is contained will depend above all on whether the world’s major industrialised countries now decisively put in place convincing stimuli. For the strangulation of public life has only just begun with the recent closures of schools, kindergartens, shops, the cancellation of football matches and flights. If such financial packages are not put together, the panic may return worse than before. Although the fear indicator VIX fizzled up to 75.42 yesterday, it is still very high. But in 1987 it had risen to around 150 points, as you can see above.
What the day brings
In this sense: Keep your direct market access open and keep an eye on the regular market updates.
Today, the diary hardly contains any interesting economic events. As always, you can find an overview here: Market Mover
At 3:00pm the index of consumer sentiment of the University of Michigan is scheduled for March.
The Bernstein-Bank wishes successful trades and a relaxing weekend!
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