Merry Crisis and a Happy New Fear

22 dic 2020

Yesterday was marked by a radical change in market sentiments. Greed was replaced by fear again (at least for some time). The VIX index added more than 30% (!), the US Treasuries yield during the day decreased by more than 5%, the CNN Fear and Greed Index lost almost a dozen points.

The reason for this was the information that the mutated strain of coronavirus not only led to a sharp increase in COVID daily cases in the UK from 15K-20K to 30-35K per day, but also wants to break out from the island. As a result, many countries of the world are panicky closing flights to the UK. Europe is seriously thinking about a complete transport blockade. In general, the greed associated with vaccines has been replaced by a full-fledged fear associated with the unknown of a new strain of virus.

What does this change in sentiments mean for prices in financial markets? In general, a massive exodus from risky assets and an increase in demand for safe-haven assets. So, there is nothing surprising in the fact that yesterday the stock and commodity markets were simultaneously decreasing as well as the prices in the cryptocurrency market. The growth of the dollar in the foreign exchange market also fits into this logic, since it serves as a safe-haven asset.

Recall that the most vulnerable in this situation are the most "hype" assets like Bitcoin or Tesla. For Tesla, by the way, yesterday was the first day of trading as a full participant in the SP500 index with a weight of 1.69% in the index (the fifth largest) and, frankly, it ended not well (-6.5%).

The decline in oil yesterday reached 5%, which again fully fit into the overall picture of what is happening.

The main question of today is whether we should expect a continuation of yesterday, or this is all? The answer to it depends on many still unknown factors: the development of the pandemic situation, the efficiency of the existing vaccines for the new strain, as well as the mood of financial market participants. And do not forget that Christmas is close, which means that the “thin” market with a permanent threat of the start of profit-taking will in any case continue to remain a threat to buyers of risky assets.