“The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilization has begun,” said S&P Global’s Chief Economist Paul Gruenwald. “Europe and the US are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year.”
Overnight, the US administration discussed a US$1 trillion stimulus plan, the UK announced a $420 billion lifeline for corporates and France said it would guarantee 300 billion euros worth of loans. The US stimulus package includes direct cash payments to its citizens, and bailouts for the airline and hotel industries.
“We will do whatever it takes to protect our people and businesses from the effects of this global economic emergency brought on by the coronavirus pandemic,” the UK’s Chancellor of the Exchequer Rishi Sunak said.
Capital Economics said market mayhem will get worse before getting better and said these fiscal measures are necessary but may not be sufficient.
“The extra fiscal support announced in the past 24 hours is a welcome and necessary step to limit the longer-term economic damage that the coronavirus outbreak could cause,” they said.
“But even a huge fiscal expansion, plus the monetary measures already in place, will not be able to prevent a major short-term hit. We doubt that it will turn markets around by itself either.”
The virus has so far claimed 7,905 lives and infected more than 197,000 people globally and is the biggest concern on investor minds as Japan’s Nikkei 225 is up 0.59%, the Kospi benchmark is 0.8% lower and the Australian benchmark is down 4.1%, with the MSCI Asia Pacific ex-Japan index down 0.1%.
Safe havens gold and the Japanese yen are both higher while S&P500 futures are down 3.4% this morning. The mood contrasts with the overnight rally when the Dow Jones Industrial Average jumped 5.2%, the S&P 500 soared 6% and the Nasdaq Composite climbed 6.23%.