Morning Note: Darker Skies Ahead.
The Nairobi Securities Exchange opens with a crazy week today. It’s been a hard one month for Investors, and there’s no signs it’s going to get better anytime soon. At least not in the near future. All this is brought about by a new invincible enemy, the Wuhan Virus, aka, the Corona Virus.
In a layman terms, here’s how to put it. Death toll around the world surged last week with Italy loosing close to 2,000 people in two days! As at yesterday, the number of deaths per day in Italy had reduced from 916 on Friday to below 800. Health systems are overwhelmed and governments are running out of options. Attention shifts to United States, Europe and Africa. While most of these countries have advanced healthcare systems, Africa’s healthcare systems might not be able to handle a surge in Corona Virus cases. If the continent growth numbers is to go by as other countries then Africa’s could become a whiplash injury to the globe.
This factor alone, will pull investors away to safer securities such as Gold, silver as local and even global stock markets are now seen to be risky. With every single case reported, the market gets just one step closer to another sell-off.
At the same time, The International Monetary Fund on Saturday indicated that the global economy had slipped into a recession. This means the purchasing power in the market will reduce. The defensive strategy the local market has tried to save the NSE from plunging might not push through any further. This might be a catastrophe to some investors. Mostly those who bought at peak. The last two trading days of the NSE saw the market gain in index value showing a rise in demand at higher price levels, investors are hoping this momentum remains on the market, at least for now as foreign markets express higher volatility ratios than the local market.
Oil, another commodity always seen as a rally asset against stocks slumped to a 17-year low as coronavirus lockdowns cascaded through the world’s largest economies, leaving the market overwhelmed by cratering demand and a ballooning surplus of crude.
Oil Futures in London fell as much as 7.6% to the lowest since November 2002, while New York crude briefly dipped below $20 a barrel. Physical oil markets are struggling to store fuel, hit by a double whammy of virus restrictions eroding demand and a damaging war for market share between Saudi Arabia and Russia that has prices on track for the worst quarter on record.
As more countries go into lockdown, global oil demand will remain in a freefall and consumption may decline by as much as 20 million barrels a day, according to the International Energy Administration. That will force producers worldwide to slash output.
Stocks across Asia fell early Monday morning trading after oil prices dropped to their lowest level in nearly two decades on fears that coronavirus would cause a collapse in global demand.
Our take: For now, all is left to the healthcare systems to work, they have to, because if they fail, the financial markets may not hold ground long enough, even at their lowest prices.