Insights

Graph of the week: Markets drop as coronavirus impacts

20th March 2020

On the back of media headlines about the spread of coronavirus, global stock exchanges last week lost close to US$5 trillion, according to the Bloomberg World Exchange Market Capitalization. This marks a fall from US$88 trillion to US$83 trillion. The S&P 500, for example, has dropped by 11% week-on-week.

In the past 20 years, there have been 23 instances where there was a weekly drop of over 5% and only 4 instances where the S&P 500 dropped by more than 10% in one week, when the world was under recession in 2000, 2001 and 2008.

Many have predicted that we are at the beginning of a recession. If you don’t believe this to be the case, it might be a good time to buy stocks. Global Central Banks have committed to injecting extra stimuli into economies through either cutting interest rates or increasing asset purchasing programs.

A screenshot of a video game

Description automatically generated
Source: BlackBee, Bloomberg, February 2020

EU and UK begin post-Brexit relationship talks amid economic uncertainty
EU chief negotiator Michel Barnier and Boris Johnson’s EU advisor David Frost have begun meetings to determine the relationship between the two entities post-Brexit. Negotiations will have to reach a conclusion by December 31, as the UK Prime Minister insists that this deadline will not be pushed out, despite indications that this time period is not sufficient given then complexity of negotiations. The EU wants to create a level ground on topics such as labour standards, tax, the environment and subsidies, while the UK wants to set its own pace on these issues in the name of independence. GBP fell 1.3% against the euro this week amid fears that the UK’s hard line might hurt the economy.

On the other side of the pond, US and UK trade deal negotiations could see an economic benefit to the UK to the tune of 0.16% in the next 5 years according to the UK Department for International Trade. A potential trade deal with the US could see lower trade tariffs and an increase in movement between workers in the two countries. While the UK hopes this will provide a boost to dairy and car manufacturing sectors, it may need to relax certain food standards as the US seeks to increase access for their farmers to the UK market, though it maintains this won’t be an option. It has also maintained that it will back maintaining standards in the NHS. The US is the UK’s second largest trade partner after the EU so a good deal struck between the economies could have a strong impact on the UK economy. 

Source: BlackBee, The Guardian, February 2020

Central Banks promise economic stimuli to mitigate coronavirus impact
Central Banks around the world have promised to do what is needed to stabilise markets that have been affected by the coronavirus. Bank of Japan, Bank of England and the US Federal Reserve have all spoken on their commitment to providing stimuli to contain the economic risks caused by the spread of the virus globally. It is expected that the Federal Reserve will lower its main rate by 50 points, the ECB is expected to lower its rate by 10 points and Bank of England is predicted to cut its rate by 50 points. Central Banks in Australia, Canada and Malaysia are meeting this week and it is likely that rate cuts will be implemented at these meetings too. 

News of this Central Bank commitment has appeared to stall a level of stock crash last seen before the 2009 economic recession. On Friday the Dow Jones had dropped to it’s worst one-day drop in history but has rallied to 1.2% higher as of Monday, with the Nasdaq and S&P 500 opening 1.1% and 1% higher, respectively. 

The European Central Bank is also soliciting opinions from citizens, academics and organisations for their 2020 Strategy Review. You can find more information on this here https://www.ecb.europa.eu/home/search/review/html/index.en.html 

Source: BlackBee, RTE, Bloomberg, February 2020

At a glance:

Three former Barclays executives, Roger Jenkins, Tom Kalaris and Richard Boath, have been cleared of charges of fraudulently hiding £322m paid to Qatar to secure investment in the company, putting an end to a decade-long saga.

In his annual letter to shareholders, Warren Buffet has defended his under-performance last year against S&P 500. In 2019, market value of Buffet’s Bershire Hathway shares increased by 11% compared to a 30% annual percentage change in S&P 500 with dividends. 

The Dow Jones fell 1,191 points, or 4.4%, on Friday in it’s worse drop in history. 

The first case of Covid-19 in the Republic of Ireland has been confirmed in a teenager in Dublin. The student’s school has been shut for 2 weeks as students self-quarantine. The teenager had recently returned from an affected area in Northern Italy.

Welcome to Insights, your weekly look at developing macro trends and events shaping markets, industries and the global economy.

To download a PDF version click here.