Global Markets Update Monday, 9 March 2020

Posted on 09 Mar 2020

Global stocks started a volatile week strongly but suffered steep declines towards the end of the week amid growing fears that the coronavirus outbreak would lead to a global recession. Central banks across the world reduced interest rates, led by the Federal Reserve, and governments announced measures to help counter the impact of the coronavirus outbreak. Policymakers from the G7 countries also pledged action.

Makers of household staples, disinfectants and video games have all bucked the sell off as people prepare for possible self-isolation.

Global Market Update

UK
The FTSE 100 closed a volatile week with a loss of 1.8%.

The IHS Markit/Cips purchasing managers’ index of services sector activity eased slightly to 53.2 in February, compared to 53.9 in January.
  
The IHS Markit/Cips purchasing managers’ index for manufacturing rose to 51.7 in February, up from in January. The reading is the highest since April 2019.

The IHS Markit/Cips construction purchasing managers’ index jumped to 52.6 in February, up from 48.4 in January, and the highest level in over a year.

US
The S&P 500 slid 0.2% over a volatile week.

The Federal Reserve surprised markets with an emergency rate reduction of 50 basis points, bringing rates to a range of 1.0% to 1.25%. The Fed last slashed interest rates by that much in October 2008, during the depths of the financial crisis, when it did so in two steps during the month. 

The Bank of Canada swiftly followed the Fed’s rate cut.

The US government approved an $8bn deal to fund a response to the coronavirus outbreak. Top officials also indicated the US administration was considering new tax relief measures to help businesses hit hard by the coronavirus outbreak, like airlines, while ruling out a large-scale stimulus package. 

Democrat presidential candidate Joe Biden secured a strong performance on “Super Tuesday”, meaning he was now the major challenger to Bernie Sanders. By the end of the week, all other potential Democrat candidates had withdrawn from the race.

The US economy added 273,000 jobs in February, beating expectations, and the unemployment rate fell back to a 50-year low of 3.5%.

Wage growth slowed to 3% in February on an annual basis, compared to 3.1% in January.

The ISM non-manufacturing index jumped to 57.3 in February, up from 55.5 in January and the highest reading in more than a year. 

The ISM manufacturing index fell to 50.1 last month, compared with 50.9 in January, as the coronavirus outbreak hit global supply chains.

Europe 
The FTSEurofirst 300 ended a volatile week down 2.2%.

As the number of confirmed coronavirus cases in Italy continued to rise sharply, the Italian government placed 16 million people (a quarter of the country’s total population) in the north of the country into quarantine until 3 April. The quarantine zone includes the cities of Milan and Venice. In addition to shutting schools and universities, gyms, swimming pools, cinemas, theatres, nightclubs, museums and ski resorts were also ordered to close, while cafes and restaurants have to close at 6pm and can only accept customers if they can be seated at least 1m from the nearest table. Large gatherings such as weddings were also banned.

The IHS Markit eurozone manufacturing purchasing managers’ index rose to 49.2 in February, from 47.9 in January, although French manufacturing activity fell to 49.8, from 51.1 in January, and Italian output edged down to 48.7 in February, from 48.9 in January.

Meanwhile, activity in the eurozone services sector improved to 52.6 during February, up from 52.5 the month before. The eurozone composite index came in at a six-month high of 51.6.

German industrial orders soared 5.5% in January, the largest jump in five years due to strong overseas demand.

Japan 
The Nikkei 225 declined 1.9% over the week.

Bank of Japan governor Haruhiko Kuroda promised to inject liquidity into markets and hinted at raising asset purchases in response to the coronavirus outbreak. 

Pacific Basin
Going against the trend, China’s Shanghai Composite Index jumped 5.3% over the week, hitting a two-year high, boosted by hopes of coronavirus-linked stimulus.

Chinese exports dropped 17.2% over January and February, with the contraction in trade blamed on the virus outbreak and the lunar new year holiday.

The Reserve Bank of Australia cut interest rates to a record low of 0.5%.

The Malaysian central bank trimmed interest rates by 25 bps, taking them to a nine-year low. 

South Korea’s finance minister proposed extra spending of almost $10bn to offset the effects of the coronavirus outbreak.

Emerging Markets
Lebanon defaulted, saying it will not pay a $1.2bn debt due on Monday 9 March and will look to negotiate new payment terms with its creditors.

India’s GDP growth fell to a six-year low of 4.7% in the last quarter of 2019. The Reserve Bank of India seized control of heavily indebted Yes Bank, the country’s fourth largest private lender, with State Bank of India, the largest government-owned bank, taking a 49% stake. 

South Africa’s GDP contracted 1.4% in the final quarter of 2019, tipping the country into its second recession in two years after GDP shrank 0.8% in the third quarter of 2019. 

Brazil’s GDP grew 0.5% in the final quarter of 2019, down from 0.6% in the third quarter. 

Bonds
Yields on government bonds fell to fresh record lows as investors fled to safe havens. The yield on the 10-year US Treasury touched a fresh record low of below 0.7%, before closing the week at 0.74%. The yield on the 30-year Treasury bond tumbled to a new low of 1.30%. Elsewhere, the 10-year German Bund yield closed the week at -0.71%. 

Currencies
The Japanese yen, which is often seen as a haven during times of uncertainty, touch a six-month high against the US dollar.

Commodities
Oil prices slumped further, with Brent crude trading around $45 a barrel, after Opec failed to reach a deal with Russia for deeper production cuts. 

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