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Morning Note: Grim Outlook, Uncertainties Tighten Grip on Markets

The NSE opens amidst uncertainties clouds hovering over global stocks. Oil prices and government bonds across markets globally fell sharply on Wednesday, indicating forced selling across financial markets and raising doubts about ability by Central Banks to contain the economic damage inflicted by the coronavirus outbreak. The prospect of slumping energy demand sent the US oil benchmark WTI crude down about 24 per cent to $20 a barrel, the third worst day on record. Brent, the international benchmark, dropped about 9 per cent to a 17-year low of $26 a barrel.

Stocks, bonds and commodities fell Wednesday in a simultaneous selloff as investors scrambled to raise cash to buffet themselves against the widening economic damage caused by the coronavirus pandemic. The Dow Jones Industrial Average closed below 20,000 for the first time since early 2017, the yield on the one-month U.S. Treasury bill briefly turned negative for the first time in almost five years, and oil prices tumbled to the lowest level since 2002. The S&P 500 had another decline triggering a market halt in U.S Equities.

Locally,the Kenya shilling on Wednesday slid to a seven-month low as Kenya confirmed three more cases of the coronavirus, while the stock exchange recorded a marginal uptick in a second straight day of investor wealth gain. The shilling was trading at an average of 104.15 units to the dollar Wednesday afternoon, compared to the closing rate of 103.72 on Tuesday. The weakening of the local currency comes at a time when the economy is taking a beating from the pandemic that has hit stock markets, caused job stoppage and brought travel to a near complete halt.

Data from the NSE shows the dividends as a percentage of share price (dividend yields) for 18 listed firms range between 7.3 and 19.7 percent, having gone up as the share prices fell in the past two weeks. The government is paying 7.3 percent for the risk free three-month Treasury bill, 8.2 percent for the six-month and 9.3 percent for the one-year paper. Investors in the stock market earn a return on capital when share prices go up, better known as capital gains, or through dividend payouts.

Here’s a wrap of how markets performed overnight.

Stocks

  • Japan’s Topix index was up 1.2% as of 12:43 p.m. in Tokyo.
  • Futures on the S&P 500 Index were down 3.3%. The underlying index fell 5.2% on Wednesday.
  • Hong Kong’s Hang Seng lost 4.3%.
  • The Shanghai Composite dipped 2.1%.
  • Australia’s S&P/ASX 200 Index fell 2.1%.
  • South Korea’s Kospi index tumbled 6.4%.
  • Euro Stoxx 50 futures slid 4.7%.

Currencies

  • The yen was at 109.24 per dollar, down 1.1%.
  • The offshore yuan traded at 7.1002 per dollar.
  • The pound was at $1.1505, down 0.9%.
  • The Aussie bought 55.83 U.S. cents, down 3.4%.
  • The euro traded at $1.0906, down 0.1%.

Bonds

  • The yield on 10-year Treasuries rose six basis points to 1.26%.
  • West Texas Intermediate crude added 7.3% to $21.85 a barrel.
  • Gold was down 0.9% at $1,472.50 an ounce.

 

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