The dreaded ‘black swan’—and what that rare event means for the markets

February 11, 2020, 10:07 AM UTC

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.

Good morning. It’s another strong start to the trading day. Let’s get right to the numbers that matter.

Market movers

Global equities are leading the way this morning. The Chinese markets are in positive territory, as is the benchmark Stoxx Europe 600. The U.S. futures too are all pointing up, following on yesterday’s impressive gains. And the unsinkable dollar? Yep, it’s gaining too.

Investor enthusiasm once again defies some bleak coronavirus data coming out of China. The death toll now is above 1,000 (the biggest 24-hour jump yet). There may be a slowdown in the infections rate—though that’s hardly comforting to those poor souls on the quarantined Diamond Princess cruise ship where the situation is truly dire. Elsewhere, companies continue to shut down offices well outside Wuhan to avoid the risk of contagion.

Still, the markets continue to shake off the bad news. The S&P 500 and Nasdaq pushed further into record territory yesterday, and that’s fueling today’s surge in overseas markets.

It hasn’t been an across-the-board rally, however. And that’s what I’ll focus on today.

The “black swan”

Even as the markets were soaring yesterday, there was a prominent sector flashing red: energy.

The coronavirus outbreak has decimated Chinese demand for oil by up to 3 million barrels per day. That kind of demand shock was not built into anyone’s models. Analysts are calling the crude/energy collapse a “black swan“—an exceedingly rare and unpredictable market event.

Today’s chart explains what they mean by that.

Brent crude, while up slightly today, is down more than 17% since the mid-January coronavirus outbreak started to rattle markets. That’s close to bear territory. The NYSE Energy Index usually follows the arc of oil prices, and this time is no different. It’s down more than 9% in that period, as the chart shows.

Meanwhile, the wider S&P, as we’ve been covering, is up slightly over the past three-and-a-half weeks.

If we truly are seeing a black swan event in the energy markets, history tells us crude may have further to fall, and that will spill over into energy stocks and the wider economy.

The longterm question becomes: is this a blip, or a permanent shock? Energy price fluctuations have a huge impact on the global economy, influencing everything from inflation to emissions. It should be interesting then to see how economists adjust their models.

Fed Chairman Jerome Powell will no doubt be asked about the coronavirus impact when he speaks to Congress this week.


Before I leave you, I want to flag a few events for your calendar. There will be four Fortune Brainstorm conferences in 2020: Brainstorm Health in Los Angeles, April 21-22; Brainstorm A.I. in Boston, April 27-28; Brainstorm Finance in Montauk, N.Y., June 17-18; and Brainstorm Tech in Aspen, Colo., July 13-15. I’m planning to be at Brainstorm Finance in June. I’d love to see you there.

Have a great day.

Bernhard Warner

Today's reads

Talking merger. There may finally be light at the end of the tunnel in the long-running T-Mobile U.S.-Sprint Corp merger attempt. T-Mobile U.S. is set to win approval for its $26.5 billion takeover of Sprint, defeating a state-led lawsuit that sought to block the industry-altering wireless deal. U.S. District Court Judge Victor Marrero in Manhattan is expected to rule as soon as this morning. Sprint shares soared by up to 70% in extended trading, while T-Mobile rose as much as 12%.

Dollar up, dollar down. Investors searching for a safe port amid the coronavirus storm have driven the dollar to a four-month high against other currencies. But the strong dollar adds another potential headwind to U.S. growth above and beyond the risks to the economy from the intensifying coronavirus outbreak, the Financial Times reports. It makes U.S. exports less competitive, putting pressure on the Federal Reserve to keep monetary policy bias easy, one analyst said.

Catastrophe bonds. The coronavirus outbreak may be about to claim an unexpected victim. While few may have heard about it, the World Bank in 2017 issued a $320m catastrophe bond backing its Pandemic Emergency Financing Facility. The two tranches of PEF bonds were originally scheduled to mature in July of this year. Thanks to the coronavirus, they are teetering on the edge of default, the Financial Times reports.

Market candy

Quote of the day: “It either seems envy from the competitors, or perhaps there’s something else, given that, you know, Mr. Thiam looks a bit different from the typical Swiss banker.”

That was David Herro, of U.S.-based Harris Associates, a leading Credit Suisse shareholder, raging in a Bloomberg interview that Tidjane Thiam, the bank’s Ivory Coast-born CEO who resigned last week after a spying scandal, had been the victim of an “orchestrated” campaign in the Swiss media, which he insinuated was motivated by racism. 

Read More

CEO DailyCFO DailyBroadsheetData SheetTerm Sheet