Extreme volatility across the markets has continued this morning as the coronavirus continues to spread and investors run scared. Italy has locked down an area containing around 16 million people which includes Italy’s second largest city (Milan) and the country’s industrial heartland. Italy’s economy was already struggling and this will surely mean they enter a recession. Other Eurozone economies could also follow. Investors are also increasingly worried about the spread of the disease in the US. Trump has been criticised for not doing enough to prepare for the outbreak which has now claimed 21 lives in the US but appears to be spreading fast. Coronavirus cases have been later confirmed at a conference that Trump attended and Senator Cruz is now quarantined after shaking hands with a later confirmed corona case. Consequently, stocks have been pummelled again with traders fleeing to safe haven assets (FTSE had fallen around 8% earlier on). Oil prices have also plummeted by over a fifth after OPEC failed to agree on cutting down production levels (to stabilise prices). Instead Saudi Arabia have now decided to cut prices and ramp up their own production levels (to increase market share and price out US shale producers).

This has led to further demand for safe haven assets including US government debt which has caused US bond yields to hit fresh record lows (whole yield curve now below 1%) which has dragged the USD lower. As a result, the EUR/USD has hit the highest levels in around a year with the market getting closer to 1.15 earlier on this morning. The GBP/USD hit a 7-week high overnight but has edged back a little as the morning has progressed. The GBP/EUR remains subdued as traders are generally favouring the Euro over the Pound at the moment due to the ongoing Brexit risks.

It’s likely the volatility will remain and the virus will continue to dominant sentiment for now.