Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, February 26, 2020. Photographer: Michael Nagle/Bloomberg

Why stock markets are doing St Vitus’ Dance

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Wednesday, February 26, 2020. Photographer: Michael Nagle/Bloomberg

Sydenham’s chorea, also known as chorea minor and referred to as St Vitus’ dance, is a disorder characterised by rapid, uncoordinated jerking movements primarily affecting the face, hands and feet.

A visitor wearing a face mask, amid concerns over the spread of the COVID-19 novel coronavirus, visits the Japan Olympic Museum in Tokyo on Feb. 26.

Observers who are taking in the behaviours of investors since the final week in February will find the description of the disease relevant.

Financial markets have been hit with a malady for over a month now.

Keen observers will have to concede that the uncertainty prevailing in the market and influencing behaviours come down to one thing.

There is just not enough information on Covid 19 and the trajectory which it might take as it spreads its tentacles through the populations around the globe.

CNN Business, in its update on March 11  reported “Global stocks are experiencing whiplash as investors struggle to figure out just how much economic damage the novel coronavirus outbreak will cause.”

Workers wear protective suits near the quarantined Diamond Princess cruise ship at the Daikoku Pier on February 21, 2020 in Yokohama, Japan.

Midweek the Dow opened down more than 700 points, or 2.9 per cent lower. The S&P 500 fell 2.6 per cent and the Nasdaq Composite dropped 2.5 per cent.

To backtrack, on Monday key markets crashed close to bear market status following Saudi Arabia’s decision to cut official pricing for its crude and making the deepest cuts for at least 20 years on its main grades.

Saudi Arabia is aiming to thumb Russia in the nose, after an OPEC disagreement surrounding volume reductions.

Falling oil prices itself is connected to slowing demand occasioned by the cramp in trade caused by the spreading corona virus. Saudi Arabia was hoping to get an agreement on reducing output, but Russia declined.

People wearing protective masks walk at Hong Kong Station of MTR in China on Feb.11.

Bloomberg reported Monday that Saudi production is set to exceed 10 million barrels a day next month, with the move to cut price and increase output  sending markets into a tizzy.

Fortune.com reported that besides the coronavirus outbreak, a crude oil price war between the Saudi Arabia-led OPEC and Russia sent oil plummeting nearly 25 per cent on Monday, noting that the West Texas Intermediate (WTI) and Brent crude benchmarks both having their worst day since the midst of the Gulf War in 1991. 

The yield on the 10-year Treasury note slid below one per cent as investors flocked to the safety of government bonds.

On Monday, the Dow Jones Industrial Average ended the day down more than 2,000 points, or 7.8 per cent, while the S&P 500 fell 7.6 per cent and the Nasdaq Composite dropped 7.3 per cent.  

The moves triggered circuit breakers, which took effect for the first time since 1997.

A bounce on Tuesday was followed on Wednesday by another downtick.  

 The FTSE 100 (UKX) fell 0.3 per cent after climbing by as much as 2.2 per cent earlier in the day.

Germany’s DAX (DAX) and France’s CAC 40 (CAC40) rose 0.9 per cent. Italy’s main stock index slipped 0.4 per cent.  

CNN Business reported on March 11 that Asian stocks tumbled, with Australia’s S&P/ASX 200 entering a bear market, having fallen more than 20 per cent from its recent highs.

A trader works on the floor of the New York Stock Exchange in US on January 7, 2019.

 Japan’s Nikkei 225 (N225) closed down 2.3 per cent. Hong Kong’s Hang Seng (HSI) closed down 0.6 per cent and China’s Shanghai Composite (SHCOMP) lost nearly one per cent.

To get back to the St. Vitus dance being observed, China, a country which claims to have conquered the Covid 19 outbreak, but which fundamentally cannot be relied on by investors as a solid source of information, has a lot to answer for.

As a result, investors must now wait to see the trajectory taken by Covid 19 in countries such as European nations, the United Kingdom, Canada, the United States and other democracies where information can be relied on.

While China says that infections and deaths are now on the decline, investors and others do not know if any of this is true.

Some sources assert that Wuhan is a giant mortuary where millions have died and this fact has been withheld.

The death rate occasioned by the disease varies so much between countries that the jury is also out on this. In South Korea the death rate is below two per cent, but in Italy it is five per cent.

While data has been forthcoming from several Asian nations, the level of comfort with such reports is not 100 per cent, as these nations –though maybe to a lesser degree than China – are also known for customising information to suit national purposes.

There remains too much which is unknown, and which will only become certain as Covid 19 spreads its way throughout the population in democracies where dependable information is available.

When this information starts to be collated, investors will behave more predictably, as they compute information on which they can rely upon.

–By Makhulu