February 2020 in Figures

February 29, 2020

February 2020 will be long remembered for its final week that saw an historic drop in equity prices around the world related to concerns about the ultimate economic impact of the spreading covid-19 virus. The Dow Jones Industrials Average index fell on each of the final seven business days of February, losing 13.6% in total and 12.36% in the final week of the month. That slump marked the ninth greatest calendar week decline in a century and a quarter. Number one in that list, an 18.15% drop in October 2008, came at the height of the 2007-08 financial crisis. The second, fifth, seventh, and eighth as well as 10th, 11th, 14th and 15th largest weekly losses were bunched between November 1929 and July 1933 and associated with the Great Depression. Number three on the list occurred on the week ended September 21, 2001 after the exchange reopened following the 9-11 attack on the World Trade Center, and the fourth worst week with a drop of 14.26% happened in the week ending May 17, 1940 when Hitler’s army began the invasion of France. Number six on the list was the week ending October 23, 1987 that included the single greatest single-day loss ever of 22.6%. One has to go all the way back to December 1899 in the infancy of the DJIA index and during the Boer War to find the 12th worst week, and the 13th instance on that infamous list took place in November 1937 in the “recession” within the Great Depression.

By it’s inclusion in the middle of the top-15 list, investors are betting that the coronavirus outbreak is going to be a really, really big story, notwithstanding the spin of many officials that are attempting to downplay its potential significance. Record-shattering low sovereign debt yields and a 4% dive even in gold on the final trading day of February also attest to the high degree of panic, suggesting that the spreading global health emergency may not be the only factor behind the selloff. It can be perhaps argued that stock markets had become overbought, and  many analysts were looking for a near-term correction. The virus threat even if contained within a few months presents impediments to both the supply and demand sides in ways that cannot be necessarily recouped afterward. Moreover, the swing toward xenophobic and anti-government politics in many parts of the world leaves it vulnerable to a threat whose solution involves trustworthy and competent public sector bureaucracies that can work cooperatively with one another.

None of the central banks in the table below changed their policy interest rates in February. For much of the month, Fed officials went to some length to underscore great satisfaction with the current level of rates and to dissuade speculation that it would be cutting rates further in 2020. But a quite different message was signaled in a four-sentence comment broadcast on the 28th from Chairman Powell.

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.

WTI oil tumbled 13% in February, and gold gave back all of its earlier February gains and more at the end. The U.S. Treasury posted a larger yield decline in the month than sovereign debt yields in other countries shown in the table below, and the Dow recorded the table’s biggest end-January to end-February decline.

The dollar appreciated solidly against the British pound, developing economy currencies and other commodity-sensitive monies. Sterling took a hit when Prime Minister Johnson imposed a mid-year deadline for negotiating trade terms with its former EU colleagues, asserting that in the absence of such his government will instead prepare for a no-deal Brexit. The dollar’s net movements against the euro, yen, and  Swiss franc, by contrast, were an oasis of stability amid all the other financial market drama.

10-Yr Yield 02/28/20 01/31/20 Change in Feb
U.S. 1.17% 1.50% -33 Basis Points
Germany -0.61% -0.44% -17
Japan -0.16% -.08% -8
U.K. 0.44% 0.52% -8
Canada 1.13% 1.27% -14
Switzerland -0.87% -0.78% -9
CB Policy Rate 02/28/20 01/31/20 Change in Feb
Fed funds target 1.50/1.75% 1.50/1.75%  0 bps
ECB deposit rate -0.50% -0.50% 0
BOJ policy rate -0.10% -0.10% 0
BOE Bank Rate 0.75% 0.75% 0
Swiss 3M Libor -1.25/-0.25% -1.25/-0.25% 0
FX 02/28/20 01/31/20 Pct Chg in $
EUR/USD 1.1038 1.1091 +0.5%
USD/JPY 107.89 108.35 -0.4%
USD/CHF 0.9650 0.9631 +0.2%
GBP/USD 1.2820 1.3205 +3.0%
AUD/USD 0.6514 0.6694 +2.8%
NZD/USD 0.6250 0.6464 +3.4%
USD/CAD 1.3422 1.3236 +1.4%
USD/CNY 6.9919 6.9367 +0.8%
Equities 02/28/20 01/31/20 Change in Feb
S&P 500 2954 3223 -8.3%
Nasdaq 8567 9151 -6.4%
Djia 25409 28254 -10.1%
Dax  11890 12982 -8.4%
Nikkei 21143 23205 -8.9%
Ftse 6581 7286 -9.7%
Canada TSE 16263 17318 -6.1%
Swiss SMI 9831 10628 -6.6%
Commodities 02/28/20 01/31/20 Change in Feb
Oil, $ per barrel 45.06 51.87 -13.1%
Gold, $ per ounce 1578.31 1591.00 -0.8%

Copyright Larry Greenberg 2020.  All rights reserved.  No secondary distribution without express permission.

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