MARKET TURMOIL TAKES BCOM BACK TO THE 70’s
Stock exchanges around the World tumbled in the past five days accumulating losses from 7% to 21% during the period and today (Monday March 16th) falling the most since 1987 in the US – with the DowJones losing a record in absolute points.
The VIX, volatility index, is not that far (82.59) from its all-time high of October 2008 (89.53).
After the World Health Organization declared the COVID-19 viral disease a pandemic investors ran to the exit doors and not even coordinated efforts among central bankers easing further monetary conditions were able to calm down the markets.
The exponential contagion growth of the coronavirus puts health-systems at risk as a flood of cases can exceed the number of hospital vacancies and the number equipment needed to treat patients.
The virus has already been spread on 119 countries, in all continents, with governments closing its boarders, suspending schools, cancelling sports events / large gatherings and imposing travel restrictions – all efforts being made to diminish the rate of contamination.
On another emergency move the FOMC shaved interest rates to zero on Sunday night and announced a 700 trillion new quantitative easing (not named as such though), but it was innocuous to help equities sustain.
It is tough to know how long it will take to go through this situation and while GDP growth will inevitable be affected, the extension of losses will depend upon the length of people staying home and businesses remaining closed.
Looking at the Chinese data, as comparison, we would have at least sixty days for the contamination rate to fall, which is more or less the timeframe the country took to contain the outbreak.
President Donald Trump, though, today told Americans that the outbreak can last up until late June and that it could drive the economy into a recession – he also advised that no gatherings of more than 10 people should take place.
The top three commodity indices were hammered with the S&PGSCI reaching its lowest point since March 2016, BCOM at levels not seen since June 1974 and the CRB touching prices from December 1998 (according to Bloomberg data).
Fundamental Focus
Coffee in New York briefly traded above US$ 115.00 cents last week, but lost ground ever since being able (so far) to hold above US$ 1 per pound – even though it is also “psychologically” impacted by the USD trading at all time high against the BRL (@ 5.0680) and the COP (@ 4,167.95).
Flow of coffee in the origins are limited by the low availability of beans, while at consuming countries stocks are being used, as from a differential standpoint these coffees become more attractive every day.
Nearby demand was also noticed from some directions, maybe in some cases not to let coverage drop much – could that also be because “high demand” might be drawing products from the shelves as consumers are stocking up goods?
It is hard to imagine that overall consumption will not be affected globally as, for example, in mature and traditional markets, such as Italy, coffee shops and restaurants make a significant contribution to total disappearance of coffee.
Those who are looking at the bright side believe that at-home consumption will compensate for losses from out-of-home, but it seems unlikely that it will take place in the same proportion.
Export figures dropping, on the other hand, whether due to a decrease in the frequency of liners, lower availability of equipment or lack of coffee at the origins, can accelerate the drawdown of inventories in Asia, Europe and in North America, including a higher usage of certs – and therefore tightening further the structure.
It is at anyone’s guess what will really happen given so many possible outcomes.
I hope all of you and your family stay healthy, positive and remain cautious.
Sooner rather than later it will all be behind us and we will meet again to exchange our experiences – over a nice cup of coffee, of course!
Have a nice week,
Rodrigo Costa
Skype: rodrigoccosta10
WhatsApp: +1 646 468 7091