The outbreak of the coronavirus that started in China has spread from animals to humans and now the financial markets. Equities actually sold off, hitting Mainland China, Hong Kong and Taiwan the hardest. Not surprising, since those markets have been most impacted by the spreading virus. The divergence of our Risk Gauges action as equities continued to new highs was a major concern and sets up the scenario where the virus could be the catalyst for a much more significant selloff.
One glaring exception to the global selloff has been Switzerland, which was up on the week, bolstered by rising gold prices. Although the Swiss franc is now a fiat currency, it still holds more gold in reserves than any other country. During global stress, it’s the preferred risk-off play. So, considering the nice run-up this week in the yellow relic, it’s not surprising that the Swiss stock market found some love and noshed on Lindt chocolate while the rest of the world worried. The drop-in rates were not a shock either, as many players were singing Gimme Shelter and headed for cover.
This week’s highlights are:
One big takeaway this week is the critical importance at looking at inter-market relationships (Risk Gauges) which use our Triple Play Indicator to get a handle on the big macro picture. It is also very effective for understanding the relative performance of specific equities verses key US benchmarks.