Welcome to the Corona Correction series in association with Refinitiv, I'm your host,
Roger Hirst.
Richard Peterson of Market Psych Refinitiv analyzes trends in global media, including
trends in sentiment.
We first heard from Richard on March the 11th when he noted that the US was still some way
from peak fear and a low in sentiment, and that he expected equities to roll over after
attempting a bounce at that time.
I asked him what his sentiment indicators were showing today.
When we look at fear around the world as related to the current situation, we do see that fear
peaked in China, Hong Kong in February, actually, and has been sliding slowly since then.
But of course, what happened was the epidemic turned into a pandemic.
And so their markets continued to get a hit as the epidemic spread around the world and
fear spread with it.
So what we've seen then in other countries is fear then rising and starting to fall again
in Korea and then Japan.
And of course, now Europe and the United States.
Both of them do seem like the fear is coming down.
So on our charts, we do see the fear starting to decline, but we also find that fear's a
bit of a short term emotion.
So what we've seen historically is that we get peaks in fear and then maybe a balance
for about a week.
And we've tested that out and we see that that is quite consistent across markets and
and assets.
But even then, it's only about a 60 percent chance that you will get that bounce when
you have 'high fear'.
So when we do our testing, we do see these four to six day bounces, and then often markets
will roll over if there is another condition, which is the overall sentiment about the situation
remains negative, especially if it's falling.
And in the current situation, it's not clear the sentiment seems to have bottomed out and
might be rising a little bit.
So we might actually have seen a definitely a short term bottom, which is easy to say
in hindsight, but maybe a longer bottom as well.
Certainly Japan and Korea had really clear bottoms on the Thursday, Friday, around the
time of the price bottom.
And then on the United States, we do see a bottom possibly as well, happening now.
So we'll see.
And that's, again, based on the fact that fear has peaked and the overall sentiment
and the economic climate is no longer declining.
So that said, and the reason I think that's happening is because of some other data points.
So in my case, we monitor media sentiments about the stock market.
But of course, media sentiment reflects what people are talking about in the news and and
in social media.
And so what we're seeing them talk about, though, are the treatments and the vaccines
and the rate of infection and whether it's accelerating or starting to be contained to
some extent.
And we're already seeing people anticipating a flattening of the curve and anticipating
vaccine approval within a reasonable time.
And of course, the FDA is now fast tracked and it approved chloroquine for treatment
of Coronavirus as well.
So you're starting to see real progress and a real recognition that there is a problem
and action.
So I think that's what markets like to see as well.
We're also seeing actually discussions of the stimulus bill and its effects.
So many people are now receiving emails or communications, talking about the stimulus
loans and other payments that they could get.
And I think when people see that it restores confidence that something is happening, that
many of these affected businesses will not go bankrupt and have to restart.
So.
So I think net sentiment is very low, of course.
But it does appear that things might be turning a corner and we'll see, of course, in the
longer term.
I mean, the spread of the epidemic, of course, will continue and we will see many, many more
people being affected.
I think even the U.S. government is estimating up to a hundred thousand could die from this.
That said, again, it's the flattening of the curve issue.
What can we expect out of this?
Can we get used to the new normal?
And that's what the markets are struggling with now.
The data has confirmed his initial thoughts a few weeks ago that China and Hong Kong had
already passed peak fear.
But for global markets it's the US that matters.
The US short term gauge of fear does look like it may have peaked.
But he would like to see a confirmation for the longer term indicator of sentiment, which
is still negative and may not yet have bottomed.
What is also interesting is that unlike SARS of 2003, and swine flu of 2009, this pandemic
is truly global, and as it rolls around the world equity markets that had initially bounced
after reaching a peak in fear and a low in sentiment, are now being hit by the lockdown
in the markets that consume their goods.
Additionally, whilst we may be looking for a tradable low the next few weeks on peak
fear, the greatest uncertainty is on the longer term prospects for a global economy in which
the virus has revealed the underlying fault-lines of a system that remains broken in the decade
after the crash of 2008.
We'll see you later with another update.