As expected, the Coronavirus has been declared a pandemic, it is the biggest health crisis in 2 generations.

Fear is starting to peak and its unlikely peak anytime soon – the fall out is that markets now don’t know how to price this event and that uncertainty is now leading to these historic trading conditions.

FX, bond, crypto, commodities and equities are acting in ways none have seen in living memory.

Finding a floor in these markets is very tough to identify and as the world tries to grapple with its appropriate health response is, markets will continue to flounder.

The questions from here is what would make this worse than it already is?

1. Oil collapses
This has already begun and the geo-political disaster between OPEC and Russia could not have come at a worse time.

Normally a falling oil price would be a good thing for global equities and risk FX as the majority of the world are net importers of oil and lower oil prices helps growth. But as we know from the 2015-16 oil price war, falls this fast are actually negative as it hits corporate profits, particularly in the US and trade balances of OPEC and oil rich nations.

2. Major parts of the US economy go into lock down to combat the virus.
This is getting close; the President clearly doesn’t want this to happen, but individual State governors are declaring State emergencies and are locking things down independently of the Federal view.

3. The virus reenergises in China leading to a second wave.

If either event appears – Risk assets will be trashed.

Trade is showing us that historical hedging is playing out i.e. USD versus EM FX or short USDJPY and EURCHF.

For equities its long Defensive vs Cyclical stocks and Quality vs Value however, this as yet has not materialised as you would expect in this level of panic.

The biggest take out of all of this is that vigilance should be at high level you have.