03 / 20


The tough measures taken by the states in the fight against the further spread of the corona virus are hitting the economy hard. Leading indicators such as the Empire State and the Philly Fed Index in the USA have recorded record declines. In order to prevent a complete crash, the states are spending enormous amounts of money to help companies and private individuals in need. With these funds, the worst (social unrest, corporate failures or depression) is prevented, but it creates the next major problem of national debt. Excessive debt has a negative impact on growth and is likely to keep society busy in the coming decades. In the US, initial weekly claims for unemployment benefits jumped by more than 3 million (see FOCUS). Such a high figure has never been seen before and reflects the dramatic virtual standstill of many sectors of the world's largest economy. Analysts expect US economic output to decline by an average of 34% in Q2. Such a decline would break all records (strongest decline -10% Q1 (QoQ) 1958). The collapsed oil price is weighing on the US fracking companies, which are no longer profitable with an oil price of $20. The danger of a wave of bankruptcies in this sector is therefore increased and the even greater risk would be a domino effect that affects the banks. Outside of China, the authorities have come to the realisation that the virus can only be stopped with draconian measures similar to those in China. A ray of hope: The first survey results from the industry in China were much more positive than expected. Many manufacturing companies in China - though by no means all - have largely resumed production. However, this increases the risk of a second wave of contagion.

Equity markets

The markets plummeted partly by more than 30%, before a recovery from mid-month onwards made up almost half of the losses - thanks in particular to the rigorous intervention of governments and central banks. The DAX lost 16.4% and the Dow Jones 13.7%. The SMI held up relatively well thanks to the defensive heavyweights and ended March at a discount of 5.3%. Cyclical small and mid-cap stocks lost slightly more at 12.9%. In terms of sectors, banking and insurance stocks as well as tourism stocks suffered most. The VIX Index shot up to over 85 at times, reaching peaks recorded last during the major financial crisis in 2008/2009. Due to the uncertainties, many analysts have revised their profit forecasts for the current year significantly downwards - some companies are already refraining from making forecasts. The speed of the "crash" is unprecedented and was not even reached during the Second World War. Stocks have never fallen so low so quickly.

Interest rates

Yields on US government bonds approached the 0.3% mark at times in this uncertain environment before recovering slightly towards the end of the month. Corporate bond spreads jumped sharply during the month. The fall in oil prices affected the high-yield segment. The US high-yield segment, which is heavily energy-ex-posed, recorded premiums of more than 10% over 10-year US government bonds. Such values have not been reached since the financial crisis. Following the extraordinary meetings/interest rate cuts, the US Federal Reserve is expected to make a further interest rate cut to 0% this year.

Currencies / Commodities

Due to massive liquidations and the sharp rise in USD funding needs, the USD rallied. From its low point, the Dollar Index rose over 8%, up 1% for the month of March. Gold also proved volatile in an initial phase, but held up well due to the uncertainties and lost only 0.5% on a monthly basis in USD, while silver lost 16.2%. The gold/silver ratio thus jumped to a new record high. The oil price halved in March due to the escalated price and supply dispute between Russia and Saudi Arabia and the virus-related decline in demand.


We expect that the shock caused by COVID-19 will take some time. With the unprecedented efforts of governments, society in general and medical research, it may be a matter of time before the virus and its consequences are mitigated. As in China, a gradual return to normality would be possible for Europe and the USA. The markets are therefore likely to be in a bottoming out phase following the recent sell-off and volatility is likely to remain high. A renewed test of the lows cannot be ruled out, as there is still too little clarity about the course of the virus and the consequential damage to the real economy. Uncertainty therefore remains high, and we are keeping our asset allocation defensively oriented for the time being. The authorities have done what is necessary to prevent a domino effect of company bankruptcies. A flattening of contagion rates in the USA would be a positive development, but it will take time.


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