Another wild week for world markets came to a close. It was full of emotions and panic selling. Markets suffered days with vertiginous falls amid chaotic trading as extreme volatility persisted. Stocks declined sharply as the number of coronavirus cases globally continued to rise. Countries ramped up measures to combat the disease, including social distancing, lockdowns, as well as orders to stay at home. Social distancing has even extended to the workplace and schools, causing many to work from home or for schools to be cancelled. Meanwhile, travel restrictions across the world remain in place, businesses have shuttered and economists slashed their global growth forecasts. Governments and central banks around the world announced measures to support the economy.
For the week, the DJIA posted losses of 17.3%, the S&P 500 of 14.5% and the Nasdaq Composite of 12.6%.Sharp declines on Monday and Wednesday triggered “circuit breakers” designed to keep trading orderly. The declines came amid growing expectations that the coronavirus outbreak will cause major damage to the economy, despite monetary and stimulus interventions. The Trump administration called for a $1.2 trillion stimulus plan (6% of GDP) designed to send money directly to U.S. citizens, while supporting small businesses and strategic industries.The Federal Reserve cut rates by a full 1%, returning its policy rate back near zero in addition to $700 billion in bond purchases. It also set up arrangements with other central banks to make U.S. dollar funding available. In Brazil, the country’s central bank cut its policy rate to an all-time low and announced other stimulus measures, including a government bond repurchase program.
Japanese stocks produced mixed returns while China equity markets fell over the week. In a surprise to the markets, the People’s Bank of China (PboC) did not cut interest rates at its monetary policy meeting on March 20. The interest rate for five-year bank loans remains at 4.75%, whereas many were expecting reductions in order to ease borrowing costs amid the turmoil in the financial markets. In Korea, where the country’s KOSPI index still lost more than 11% on the week, the central bank cut rates by half a percentage point, which took the policy rate below 1% for the first time. In Australia, the Reserve Bank of Australia (RBA) cut its policy rate to 0.25%, a record low, and implemented a government bond-buying program, the first time it has implemented quantitative easing.
European equities posted sizable losses despite a flood of fiscal stimulus and further interest rate cuts as countries imposed lockdowns, closed borders and the EU said it would curb most foreign travel for 30 days. The European Central Bank launched an expanded program to buy up to 750 billion euros ($820 billion) in sovereign and corporate bonds to support the economy, and the Bank of England cut its key interest rate to a record low of 0.1 per cent. On Friday, European markets finished broadly higher with shares in France leading the region. The CAC 40 was up 5.01% while Germany's DAX is up 3.70% and London's FTSE 100 was up 0.76%. But for the week, the pan-European STOXX Europe 600 Index fell 1.85%. Germany’s Xetra DAX Index slipped 3.56%, France’s CAC-40 Index declined 2.51%, and Italy’s FTSE MIB Index dropped 0.4%. The UK’s FTSE 100 Index slid 2.78%.
Despite central banks and governments around the world opening the floodgates with extraordinary measures to combat the stress, financial markets' investors grew increasingly concerned about recession risks tied to the global coronavirus pandemic.Suddenly there are trillions of dollars or euros out of thin air available to everyone for any use. Who will pay for all this money?
Some believe that there will be a global debt write-off as countries are now spending billions of dollars and euros in coping with the effects of coronavirus, money that they cannot ask back from their already indebted and suffering societies.
But what really matters is what happens after the coronavirus. Many are talking about global economic disaster and changing geopolitical relationships. The full economic impact of this “black swan” event remains unknowable. The scope, severity, and duration of the crisis are still uncertain. But next week we'll get the first glimpse of the toll it will take on the world economy as fresh data is coming out.
Week ahead calendar
Monday: Chicago Fed National Activity Index
Tuesday: Markit Manufacturing PMI flash, Markit Services PMI flash, New home sales
Wednesday: Durable goods, Housing price index
Thursday: Jobless claims, Q4 GDP [final], Advanced economic indicators
Friday: Personal income/spending, PCE price index, Consumer sentiment
Monday: Consumer Confidence for March
Tuesday: Markit Manufacturing Composite, Services PMI for March
Tuesday: Jibun Bank Manufacturing Composite, Services for March
Wednesday: BoJ Monetary Policy Meeting Minutes
Friday: Industrial Profits for February
The next Weekly World Markets Review will be posted on Saturday 28 March 2020.
This commentary may not be relied on as investment advice.