“Black Week” for financial markets
Collapse of oil prices and stock indices
Financial markets have experienced one of the worst weeks in more than three decades of trading. “Black Week” began with an almost 30% drop in oil prices. It was the strongest one-day decline since the Middle East crisis in 1987. The market reaction was linked to Saudi Arabia's unexpected decision to start a price war after Russia withdrew from the production restriction agreement, active since 2016. The market pressure was reinforced by Donald Trump's unexpected decision to terminate direct air service between the US and the EU for 30 days. These measures were taken to combat the further spread of coronavirus. EU and US governments were frankly unprepared for an epidemic that WHO on Wednesday reclassified as a pandemic. Investors found the measures insufficient and taken too late.
Volatility on the currency market has increased sharply. Investors react nervously to incoming news and unexpected decisions of the Central Bank.
At the beginning of the week, the dollar index updated 1.5-year low. The pressure on the American currency was exerted by the Federal Reserve's decision to reduce the interest rate by 50 bps last week. In the second half of the week, the dollar managed to recover some of the lost positions due to the weakening of other G7 currencies.
On Wednesday, Bank of England made an unexpected decision. The regulator held an extraordinary meeting at which it decided to reduce the interest rate by 50 bps. These news put pressure on the British currency and GBP/USD closed the trading week with a decline of more than 3%.
The main driver of the EUR/USD pair decline was the ECB meeting, at which the regulator decided to keep the interest rates unchanged and to increase the asset buyback program from 20 to 120 billion dollars. Investors considered these measures insufficient and sold EUR, expecting serious deterioration of the economic situation in the EU. In her closing speech Christine Lagarde once again hinted at the limited instruments of the ECB and called on national governments to launch a coordinated fiscal stimulus program to mitigate the economic blow from the Coronavirus pandemic.
Precious metals market
Gold tested $1700 this week, but ended up with a more than 5% decline. The panic that broke out in the market in the second half of the week did not pass over precious metal. However, most experts still believe that in the current economic situation gold retains a good opportunity to resume its upward movement.
The oil market failed to recover from the shock, when on Monday quotes collapsed by almost 30%. In the middle of the week, an additional factor in the pressure on oil prices was the unexpected decision of the U.S. to close the air service with the EU. The countries of the Middle East continue to add oil to the fire. In the middle of the week, the head of Saudi Aramco announced the increase in oil supplies to 12.3 million barrels per day. On the same day, the UAE authorities announced an increase in production of over 5 million barrels per day. The UAE plans to increase production to 6 mln bpd.
All major world stock indices have completed the trading week in the red zone. US stock indices on Thursday showed the worst results since Black Monday 1987. Dow Jones Industrial Average fell 10%, while the S&P 500 and Nasdaq Composite lost over 9%. European and most Asian indices showed a double-digit decline on the week's results. Chinese indices showed a moderate decline.