US stocks plunged at the start of the day, and the S & P 500 index fell 7%, triggering a first-level fuse mechanism. This is also the second time in the history of US stocks.

The plunge in oil prices has heightened fears of financial market turmoil, and "Black Monday" raided global financial markets.

On the evening of the 9th, Beijing time, US stocks plunged at the opening of the market, and the S & P 500 index fell 7%, triggering a first-level fuse mechanism, and oil stocks fell across the board. This is also the second time a fuse has been triggered since the introduction of the fuse mechanism in 1988. The Panic Index (VIX) once stood above 60. And in the morning, stocks from Asia Pacific to Europe settled down, and even gold as a safe-haven asset dived under the shock of liquidity.

Institutions generally said that the next thing to watch is the credit market. "Given that energy companies are the largest issuers of non-investment-rated bonds, accounting for 11% of the US high-yield bond market, crude oil price wars may have an impact on the US credit market." Invesco Asia Pacific (excluding Japan) Global Market Strategy Division Zhao Yaoting told the First Financial reporter.

Hongye, Managing Director and Head of Research of Bank of Communications International also believes that the impact of the oil crisis will first be reflected in the plunge in the price of US junk bonds, rising risks to the stability of the financial system, and rising deflation expectations, which will increase the difficulty of monetary policy.

"The plunge in oil prices has once again exacerbated market vulnerabilities, and belief in the central bank has begun to shake." Jason Daw, head of Asia-Pacific foreign exchange strategy at Faxing Bank, told reporters, "At present, almost every corner of the financial market is in crisis Signs. The longer the global epidemic lasts, the greater the risk of a full-scale crisis. "

Oil price slump exacerbates market vulnerability

Following the new crown pneumonia epidemic, the plunge in oil prices has become another straw that has overwhelmed global financial markets.

International crude oil prices fell by 10% on Friday (6th), and then fell by more than 20% on the 9th. Brent and US WTI crude oil futures prices fell to about 35 US dollars and 32 US dollars / barrel respectively. However, the decline has not ended.

The oil price panic quickly spread to financial markets. On the 9th, the US stock index futures plunged more than 4% and triggered a meltdown during the session; the Asia-Pacific stock market fell sharply in the early trading, the Nikkei 225 index fell more than 6%; the European stock market also fell collectively, and the German DAX index fell 7.59%. Several varieties of domestic futures markets opened lower limit, the Shanghai stock index closed down 3.01%.

Since then, the U.S. stock market has also plummeted. The S & P 500 index fell 7%, triggering a first-level fuse mechanism, and suspended trading for 15 minutes. At the time of the fuse, the Dow fell 1884.88 points, refreshing its lowest since January 2019, and the Nasdaq fell 6.86%, creating a 2019 New low since October.

Since the U.S. stocks implemented the fusing mechanism for more than 30 years, the actual triggering of the fusing was only once before, that is, October 27, 1997. On the day, the Dow plummeted 7.18% to close at 7161.15 points.

It should be pointed out that the current benchmark index of the US stock market fuse mechanism is the S & P 500, and the individual decline thresholds of the three-level fuse are 7%, 13%, and 20%, respectively. This means that when the index falls 7% and 13% from the previous day's closing point, trading in the US securities market will be suspended for 15 minutes. When the index drops 20% from the previous day's closing point, trading will stop on the day.

At the time of writing, U.S. stocks have resumed trading and continued to rebound. The Dow has narrowed its decline to 5.22%, the decline has narrowed to less than 1400 points, the S & P 500 has narrowed to 5.1%, and the Nasdaq has narrowed to 4.6%.

"Despite the sharp drop in demand for crude oil caused by the epidemic, Russia still refused to further reduce production, the Organization of the Petroleum Exporting Countries (OPEC) and Russia broke down in negotiations, Saudi Arabia announced a price war and planned to increase production in April. This was the main cause of the plunge in oil prices. Zhao Yaoting told reporters. This in turn led to financial market turmoil.

UBS has recently lowered its oil price forecast. Brent crude oil futures target prices at the end of June, September and December have been lowered to US $ 40, US $ 45 and US $ 50 / barrel (previously US $ 62, US $ 64 and US $ 64 / barrel). Barrels), WTI crude oil futures target price is 3 US dollars / barrel lower than Brent. Zhao Yaoting said, "In the next few days to weeks, we do not rule out that Brent oil prices will fall further to $ 30 / barrel."

However, UBS also believes that Saudi actions may force Russia to return to the negotiating table. The short-term oil producers, such as the United States, cannot bear the low oil price for a long time and may resume production reduction negotiations. If the epidemic is controlled and economic growth picks up, oil prices are expected to recover in the second half of the year.

Test the junk debt and increase the difficulty of monetary policy

Not only shocking stock and commodity markets, the next risk point for a plummeting oil price is likely to be the US credit bond market.

Hong Yan told reporters that the plunge in oil prices will directly affect US junk debt. The United States has seen a boom in the shale gas industry over the past decade. Oil companies have been able to issue such low-rated junk bonds at lower prices, and credit spreads have been relatively low. But now that oil prices continue to fall, the junk debt solvency will be greatly affected. "Generally, banks issue junk bonds for them, and some banks buy junk bonds, so the stability of the entire financial system will be greatly damaged."

"The crude oil price war may have an impact on the U.S. credit market, which will affect U.S. shale oil producers and large state-owned oil companies. We expect that credit spreads in related industries and sovereign countries may widen." Zhao Yaoting also said.

Moody's reports that between 2020 and 2024, North American energy exploration and producers have approximately $ 86 billion in debt due, and up to 62% of them are junk bonds. In the last two years, 57% of the $ 86 billion in debt is due.

In addition to energy bonds, high-yield bonds are all worthy of attention. The epidemic is still spreading globally and full of uncertainty, coupled with the plunge in oil prices, although global credit bonds are relatively cheaper than government bonds, they are still not attractive enough.

"The risk of further economic deterioration in the next few months is high, and now is not the time to increase risky asset positions." Dan Ivascyn, chief investment officer at U.S. bond giant PIMCO, said that at least U.S. investment grade bond credit spreads are comparable to government bonds Going to 150bp is the better time to enter. Now focus on higher quality bonds, such as real estate related bonds, to protect against downside risks.

Moreover, in the past month, US stocks have fallen by more than 10%, volatility has soared, and safe-haven funds have poured into US debt. On the 9th, the yield on 10-year US Treasury bonds fell below 0.5%. The market currently expects the Fed to cut interest rates by another 50bp next week. According to the CME Federal Reserve Observation Tool, the probability that the Fed will lower interest rates to 0 to 0.25% at its March meeting is 33.6%, and the probability that it will fall to 0.25% to 0.50% is 66.4%.

On Friday, Citi boldly shouted that the Fed will also cut interest rates by 100bp this year (50bp on March 19, and another 25bp in April and June). "The new debt king" Gundlach said, "The Fed is now a bit rudderless."

Hong Yan said that oil prices have been one of the most important indicators of inflation expectations. As oil prices plummet, deflation expectations are set to skyrocket. The sharp decline in US bond yields is a sign of very serious deflation expectations. When deflation expectations take shape, the Fed's monetary policy may fail.

"If the Federal Reserve cuts interest rates by another 50bp, it will cut interest rates by 100bp continuously in a month. If the crisis worsens, it will become a negative interest rate. This is the real global crisis." Hongye said.

RMB assets are still relatively strong

The recent stress tests conducted by MSCI on the global market show that in the short-term scenario where the global economic growth rate has fallen by 2 percentage points in the short term (current mainstream consensus is a decrease of 1 percentage point) and the risk premium has increased by 2 percentage points. US stocks are still likely to fall another 11%.

Yang Jing, general manager of the financial markets department of Standard Chartered Bank (China) Co., Ltd., told First Financial News that "the oil price fell more than the current one during the financial crisis in 2008, and commodities fell sharply. Whether the risks of the financial crisis will rise substantially in the future still needs to be closely monitored. Pay close attention to the fermentation of the epidemic and its impact on the global economy and financial markets. "

Affected by overseas markets, on the 9th, the Shanghai Index closed down more than 3%, and the net outflow of funds from the north on that day was 14.3 billion yuan. The exchange rate of the RMB against the US dollar depreciated slightly by nearly 100 points, but the RMB performed strongly in the early trading.

Overall, Chinese assets are relatively strong. Since the opening of the A-share market on February 3, the S & P 500 Index has fallen by nearly 8% before the plunge on March 9. The Shanghai Index has only retreated by about 1%. The RMB has also become the best performing currency among emerging market currencies. The exchange rate of the US dollar remained stable.

Wang Shengzu, co-director of the Goldman Sachs Investment Strategy Group's Asia region, told CBN reporters that China may become a safe haven for global capital in view of its earlier recovery from the epidemic. The Goldman Sachs Investment Strategy Group forecast in its 2020 investment outlook released in January that this year's emerging market performance will be slightly better than that of U.S. stocks, and this forecast is maintained under the current circumstances.

Major institutions also believe that the RMB is expected to maintain an interval fluctuation pattern in its current strong position. "Since the Spring Festival, domestic stock markets have performed better than global assets of the same type. Therefore, we have also observed that the recent QFII (Qualified Foreign Institutional Investor) demand for foreign exchange settlement and sales is relatively strong." Yang Jing said.

He also mentioned that the domestic foreign exchange market has become more active since last week. Although the short-term decline in Chinese exports will put pressure on the current balance of payments, the RMB exchange rate will inevitably be subject to some depreciation pressure. However, the decline in the US dollar index, the premium of RMB assets on overseas asset returns, and the continued inflow of overseas investment into China's capital markets will support the RMB exchange rate. (Zhou Ailin, Zhou Nan and Feng Difan)