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Paragon Commentary

Futures File: Coronavirus Makes Market Fever

Feb 28, 2020

Markets Feverish over Coronavirus

Commodities and stock markets worldwide are feeling the impact of the coronavirus outbreak, leaving many investors feeling ill. This week saw a significant expansion in cases of COVID-19 outside of China, increasing concerns that the disease will have a global impact, affecting human health, transportation, and trade.

There are now cases on every continent except Antarctica, and extensive outbreaks in Europe and the Middle East threaten to expand.

Investors are now bracing for more travel restrictions, business closures, and economic slowdowns, leading them to liquidate stocks and physical assets tied to global growth. Others are “hedging” their portfolios using futures contracts and put options, which can protect against further losses.

Energy markets have been dropping since early January on expectations of global slowdowns, and April crude oil hit a one-year low on Friday under $44 per barrel.

U.S. stocks had been holding up for weeks on the hopes that the U.S. would remain insulated from the coronavirus, with markets reaching all-time highs last week. However, changing outlooks from the U.S. government sent our markets into one of the sharpest declines on record, losing over 15% since making all-time highs just last week.

Even gold and silver, which traditionally rise when stocks drop, caught the selling fever, trading Friday for $1,585 and $16.65 per ounce, respectively.


Cattle Market Trampled

Agricultural commodities have been dropping this year, primarily on concerns of falling global trade and decreasing foreign demand for U.S. ag exports.

When the coronavirus was primarily contained within China, the hardest-hit markets were those sensitive to Chinese demand, like soybeans, cotton, and pork. As the impact is becoming more global, so too are the commodity impacts.

Cattle stumbled hard this week, sparked by concerns of lost exports to Japan and South Korea, the top two buyers of U.S. beef.

By Friday, as domestic fears rose, the cattle were hit even harder on concerns that U.S. consumers may tighten their belts and reduce their purchases of steaks. As of midday Friday, April live cattle futures traded for $1.09 per pound, a four-month low.

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