Posted on 23 Mar 2020
Global stockmarkets remained volatile, although the extraordinary supportive fiscal measures implemented by governments appeared to have halted the decline – at least temporarily. With most of Europe in lockdown, as well as one in five US citizens, Asia provided a rare ray of hope as China announced no new cases of COVID-19 for three days in a row. However, news of new clusters in South Korea unsettled investors.
The FTSE 100 dropped 3.3% over the week.
As UK citizens were asked to stay at home and avoid unnecessary social contact, the UK government announced an unprecedented package of fiscal measures to support businesses and people who lose their jobs due to COVD-19. This includes a commitment to pay 80% of wages up to £2,500 a month. The UK government refused to say how much it expected the measures to cost.
The Bank of England cut interest rates to a record low of 0.1% and expanded its quantitative easing programme by £200bn to £645bn. Two weeks ago, the base rate stood at 0.75%.
The S&P 500 plunged 11.5% over the week, with a 12% tumble on Monday 19 March eclipsing the worst performance of the pandemic so far and marking the biggest single-day loss since the crash of October 1987.
For the second time in under a fortnight, the Federal Reserve announced a surprise interest rate cut.The fed funds rate was lowered by 1%, taking it to a range of zero to 0.25% - a level not seen since 2015. The Fed also announced wide-ranging actions to support financial markets, including an additional $700bn in asset purchases, and expanded repurchase operations along with dollar swap lines with foreign banks and a credit facility for commercial banks to ease household and business lending. The Fed also announced co-ordinated action with peers from Japan, the eurozone, the UK, Canada and Switzerland to lower the cost of borrowing dollars internationally through existing swap lines.
Almost one in five of US citizens has been asked to stay at home, including 40 million people in California. New York also went into lockdown.
The FTSEurofirst 300 lost 1.4% over the week.
The European Central Bank launched an emergency €750bn bond-buying programme to ease the impact of the coronavirus pandemic. The so-called Pandemic Emergency Purchase Programme comes just six days after the ECB unveiled measures that failed to calm markets, piling pressure on it to do more to support Europe's economies.
Germany broke with its strict “black zero” fiscal policy, announcing it would issue more than €150bn of new debt as part of a sweeping package of emergency measures to save its economy from the brutal effects of the coronavirus pandemic. The government also plans to create a new €500bn bailout fund to rescue companies hit by the outbreak.
The Zew survey of German investor sentiment plummeted to its lowest level since the 2008 financial crisis in March, falling to -49.5 compared to +10.4 in February.
The Nikkei 225 fell 5.0% over the week.
The Bank of Japan said it was prepared to cut interest rates further into negative territory as it became the first G7 central bank to follow the Federal Reserve’s weekend intervention by saying it would double its annual target for equity purchases to ¥12tn ($112bn).
Japan said it was considering re-opening schools in April.
Chinese industrial output shrank 13.5% over the first two months of 2020, while retail sales plummeted by 20.5% on a year-on-year basis and fixed-asset investment fell by 24.5%. The numbers were far below analysts’ expectations.
The Philippines shut its financial markets indefinitely because of the coronavirus pandemic.
Turkey’s central bank lowered interest rates by 100bps to 9.75% as part of a package of measures aimed at softening the coronavirus blow on the economy. South Africa’s central bank also cut interest rates by 100bps, taking them to a six-year low of 5.25%.
Russia bucked the broader trend to lower rates, holding interest rates at 6% in fear that a cut in rates would exacerbate the rouble’s fall this year.
US bond yields were volatile as the prospect of stimulus initially boosted long-term bond yields before falling as the Fed said it would increase its holdings of Treasury securities by at least $500bn and its holdings of agency mortgage-backed securities by at least $200bn. The yield on the 10-year Treasury rose as high as 1.25% before closing the week just below 0.9%. The yield on 30-year US Treasury jumped back above 1.8% before closing the week around 1.5%.
European bond yields rose, in part due to concerns over the sustainability of Italy’s public finances. Having started the week around -0.55%, the 10-year German Bund yield rose as high as -0.18% before closing the week around -0.32%.
Peripheral eurozone bond markets fared even worse, with the yield on Italy’s 10-year government bond touching an intraday peak of 2.96% compared to less than 2.0% at the start of the week.
10-year UK Gilt yields closed the week 16bps high at 0.56%, having touched an intraday peak of over 1.0%.
The 10-year Japanese government bond also moved back into positive yield territory.
Brent crude hit a 17-year low of below $25 a barrel, before briefly rising above $30 a barrel on reports that President Trump could intervene in the Russia-Saudi price war.
Gold remained under pressure, reaching a three-and-half-month low of $1,473 a troy ounce as investors continued to liquidate positions. Copper hit a four-year low as fears intensified that the coronavirus outbreak will lead to a global recession.
The British pound touched a 30-year low against the US dollar, falling around 5% against both the US dollar and the euro.
Emerging market currencies have fallen to their weakest level since the Russian and Long-Term Capital Management crises of the late 1990s. The Russian rouble and Mexican peso have fallen around 25% against the US dollar in recent weeks, while the South African rand has declined around 20%.