The news coverage of the spread of COVID-19 or, more popularly, Coronavirus seems more like a scene from some dystopian sci-fi movie rather than real life. But the impact on markets has been severe. This is highlighted well by the chart below from big xyt that shows this week’s trading. Naturally volume spiked with equity volumes doubling but, more alarming, was that ETF volumes tripled. This shows just how much of a hurry investors are in to change their view or at least hedge it with brute force rather than waste time stock picking.📷
We all know markets dislike uncertainty and COVID-19 represents the worst sort - we've all been through country defaults and runs on banks or other sectors. But no-one really knows what the true impact of COVID-19 will be and so fear is feeding on itself. Another factor is that markets have become fully accustomed to Central Bank intervention to put things right again whenever the economy looks like it might need a bit of a tonic. But until Central Banks get a handle on the true impact themselves, they don't really know what to do. Once there is some certainty (however good or bad) then folks will sensibly be able to price in risk again. Until then it's likely to be a white knuckle ride.Meanwhile, COVID-19 will go down in history as the first virus that had a bigger impact on the economy than on human life.