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News-Global economic downturn by Coronavirus-MW

After a lull time, the phone rings and Computer traders are firing an unrelenting warning on the ETX Capital exchange again.

There is speculation that investors outside the United States may have been caught off guard by US time changes over the weekend and still expect Wall Street to open at 2:30 pm London time.

It's hard to believe that many investors missed the news about the stock market plummeting at 1:30 pm, but everyone should be present right now.

Regardless, with the trading volume rebounding, some dealers have had trouble fulfilling orders.

Noted economist Mohamed El-Erian fears that Wall Street will continue to slump in the days ahead.

El-Erian, chief economic advisor at Allianz, told CNBC that this is no time to be buying the dip or selling everything. His advice - stay on the sidelines.

“This is going to be treacherous for a while. I would advise most retail investors to stay on the sidelines, not panic. There will be opportunities but they’re not now.”

El-Erian suspects that Wall Street could fall 20% or 30% from February’s record peak before stabilising. As we’re currently 19% down from that high, further heavy losses are possible....

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US corporate bonds could face 'Minsky Moment'

If the stock market crash isn’t bad enough, the fallout in the US bond markets is perhaps even scarier to contemplate - particularly given a boom in risky borrowing by US oil and gas firms in recent years.

Deutsche Bank has just issued a note warning there could be a “Minsky moment” for high-yield American bonds - in a nod to the economist Hyman Minsky’s theory on how markets can crash amid widespread panic following periods of speculative investment.

The US subprime collapse of 2008 is regarded as one such moment, so the comparison is ominous to say the least...

The bank’s analysts warn that defaults - companies being unable to repay or refinance their debts - are now inevitable, with around $13bn of debts due for repayment before the end of 2021 from the most heavily-indebted oil and gas firms.

In a shocking sign of the chaos to come, it says the distress ratio for US oil and gas high yield debt - defined as the proportion of debt trading with a spread of at least 1,000 basis points (in other words, bonds with yields that are more than 1,000 basis points higher than a reference yield such as on a US Treasury bond) - was already 62.3% as of Friday before today’s oil price collapse.

To put that in context, it says the distress ratio hit 43.9% in March 2016 when oil prices last crashed. In good times, when the oil price peaked in late 2018, it was 4.8%. In other words, well more than half of heavily-indebted US energy companies have borrowing costs that are going through the roof. Gulp.

In another illustration of how risky the situation is, Standard & Poors says the percentage of oil and gas borrowers with negative outlooks on their credit rating - which gauges their financial strength and is key for borrowing money on reasonable terms - is around 33%, which is well above the long-term average of 19%.

Central bankers have been worrying about the US high yield bond markets for quite a while now already. This could be the start of something quite dramatic indeed.

Bang on cue....

This might be one of the most stunning charts of all.

Bonds for the oil company Occidental, which were trading above par just in mid-February, now completely obliterated. 

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The Dow Jones industrial average is now down 14.5% so far this year.

Just last month, the Dow hit a record high of 29,551 points. At just 24,420 right now, it’s 19% down from that peak -- a very bruising slump that has hit US savers badly.

Back in January, the US president was trumpeting Wall Street’s performance:

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All areas in the S&P 500 index fell sharply this morning.

Energy stocks are also leading the habit here, following a 20% drop in crude oil prices.

Banks also go down, as traders anticipate a recession - and may spike in loan defaults. Bank of America and Citigroup both dropped 10%, along with JP Morgan.

Edward Moya of trading company OANDA says that merchants are selling goods despite forecasting that US interest rates will likely drop to 0:

The stock market fell free and it seemed that central banks and governments could not do anything in the short term. Sales of technology are becoming ugly and despite high expectations, the Fed will bring interest rates to unlimited levels, retail investors will probably want to wait for this. It seems that the collapse in oil prices has added a record to the deflationary fire that the Fed will try to extinguish. The fear of viruses, the risk of deflation and rising tensions in the credit market, means the market will soon see the Fed launch a new QE program.

Eventually, investors will start to replicate the stock, but it looks like the technical selling may still be bad for a few more days. The long-term playbook is likely to buy stocks again as the market will break out of the virus, adjust lower oil prices and expect a rage of global stimulus that will probably exist next year.

Kalyeena Makortoff
A computer trader on London-based ETX Capital is firing notices that sound like bomb raid alarms, which is a bit worrying.

I am working to sell 100 [stocks] a trader shouted. Another said I had received a bid, another said. Another customer is looking to sell 50% of everything.

Merchants must search for multilingual staff, including those who speak Spanish, to help streamline transactions from international customers. People dealing with institutional clients are trying to get through their trades in a chaotic environment..

Each of the 30 members of the Dow Jones industrial average is declining today - some very quickly.

Companies especially exposed to global growth and tourism, the hardest hit. Chemical giant Dow Inc fell 16%, followed by aerospace maker Boeing (-12%), oil giant Chevron (-11%), investment bank JP Morgan (-9 %) and manufacturer of machinery and construction Caterpillar (-8.5%).

US stocks are weakest since 2019
Today, often, the America America S&P 500's stock index has dropped to its lowest level since June 2019.

The Dow (containing only the 30 largest, most famous US companies) has dropped to its lowest level since January 2019.

US investors may think they have fallen slightly - the UK FTSE 100 is at its weakest point since 2016 (when the pound weakened as Brexit started pushing stocks up).

Sorry! The Dow Jones industrial average fell only a short time of 2,000 points (!), When the sell-off gathered more speed.

That (un) comfortably broke its worst point performance - 1,190 points dropped at the end of last month.

That means about 7.5% was wiped out of the Dow - the worst day since the collapse of Lehman Brothers in 2008.

Trading has resumed on Wall Street ... and stocks continue to slide.

The S&P 500 is now down 7.3% today (an eye-plunge), when trading automatically stops.

Investors held their breath ... and decided that they were still panicking about the global economic downturn, the oil price war and the spread of Covid-19 around the world.

Market in meltdown
Kalyeena Makortoff
Meanwhile in London, stocks are slipping deeper into the red ... as my colleague Kalyeena Makortoff reported:

This is an absolute chaos, this is an absolute chaos, says Michael, head of the sales team at the spread betting company ETX Capital.

Traders were wandering on the edge of the table, screaming for deals. They tried to find out which stock was trading in the US after the S&P 500 briefly paused after its 7% decline a while ago.

You can barely hear anyone through phone calls and transaction alerts, sounding like alarms throughout the office.

I can buy another mate, it's limited, a trader screams. Another just tried to buy Nasdaq - but I can say, another said.

Not everyone is pessimistic, with one trader shouting that at least one customer of high net worth ordered hundreds of US stocks. (Though it's unknown whether it's a bet with any chance to pay off)

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