On the verge of the new Great Depression?

World markets remain extremely volatile, which was last observed by investors before the Great Depression. Of the six most significant one-day declines in the US market, three occurred in October-November 1929, two (probably two, so far) in March 2020, and one in Black Monday 1987.

Unfortunately, comparisons with the troubled 30s of the last century go beyond the fluctuations of stock indices. Previously, similarities were limited only to the rudiments of trade wars. However, now as more and more countries are going into self-isolation, it breaks the established logistic chains. While coronavirus is spreading across Europe and America, there is a higher chance that governments will turn to stimulate domestic demand that will accelerate deglobalization.

Deglobalization in the 1930s caused the oversupply crisis and stretched the economic recovery to many years. It was even worse for the markets because they only returned to peak levels of 1929 a quarter of a century later.

Of course, such forecasts is just a grim reminder of the lessons of the past and not a guide to next markets or governments move. However, the world is already facing oil producer price wars. Russia and Saudi Arabia flex their muscles, causing the groaning of other producers who were unable to raise reserves like Russia or have higher production costs than Saudi Arabia.

One way or another, new oil lows on Wednesday morning is a warning for investors about weak real demand. The media are predicting that oil storage facilities will be filled in the coming weeks. Filling the US and China’s strategic reserves will buy some time, but can hardly be seen as a support factor for oil prices in the next few weeks or months. Right now, a decline in oil prices is further destabilizing the markets, pushing down not only stocks of producing companies, but stock indices as a whole.

The FxPro Analyst Team