MARKET UPDATE MARCH 2020
Coronavirus pandemic gets March off to a volatile start.
By Sarah Ryman
Markets face turmoil with coronavirus fears causing both the UK and US equity markets to suffer their worst days since the 2008 financial crisis. The spread of the virus has meant losses running into the trillions as fear takes hold and central banks try to do their bit to support economies.
The world bank provided $12 billion of funding for countries to help them adapt their responses to the outbreak as global bodies rallied a multilateral effort to contain the virus. Fear of a global recession caused by simultaneous shocks to both supply and demand were given further gravitas as analysts at the UN predicted the fall in markets could depress growth to below 2.5% this year - and that was only the start of it.
Government bonds benefited from a stampede towards safety and UK gilts for two and five years fell into negative territory for the first time ever, US government bonds hit record lows.
The UK manufacturing sector grew at its fastest rate in ten months in February, survey data showed this month, but signs emerged that coronavirus has started to disrupt the industry. UK Construction output rose at its fastest rate in over a year in February according to the IHS Markit/CIPS construction purchasing managers’ index which showed a reading of 52.6.
The government have started negotiations surrounding UK-US trade deal objectives with the Department for International Trade highlighting that the deal is expected to increase transatlantic trade flow by £15.3 billion. However everything seems to have hit pause as the global impact of Covid-19 takes all focus.
Bank of England Governor Mark Carney held an unexpected emergency meeting as the central bank slashed UK interest rates to just 0.25% in a bid to boost consumer spending. The cut takes UK interest rates to their lowest level in the Bank’s 325-year history. This was followed by Chancellor Rishi Sunak unveiling a spending-spree budget hitting headlines with substantial packages to shelter the UK economy through the crisis.
The continent-wide Stoxx 600 plummeted further pushing the market into bear territory as Italy went into quarantine at the start of the month. The European Central Bank (ECB) unveiled a fresh stimulus package yesterday to help fight the economic impact of the pandemic but markets were left dismayed as the Bank unexpectedly stopped short of an interest rate cut.
The Federal Reserve slashed interest rates at an emergency meeting as policy makers around the world vowed to contain the economic fallout from coronavirus. Fed Chair Jay Powell said that the 50 basis point cut came after rate-setters had witnessed the “broader spread of the virus” and “come to the view that it is time for us to act in support of the economy”. The shock move was the first time the Fed has cut rates between scheduled meetings since 2008, at the height of the financial crisis.
Both the US and the UK were hit by their biggest one-day falls since the 2008 financial crisis and Wall Street has triggered two automatic cut-outs on trading systems which paused selling for 15 minutes in both instances.
Opec failed to agree on a supply cut to stabilise the oil market resulting in Brent Crude plunging 30% in the biggest price drop since 1991’s Gulf War.
Stay safe one and all.
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