Duncan Donald

Mon, Mar 23

Governments and Central Banks around the world forced to act as Covid 19 depletes the global economy


In an unprecedented week that has shaken the globe and financial markets the world governments and central banks have had to step in to try and halt the demise of the global markets. As the virus impacts expand into Asia, Europe and the Americas, forcing the public and businesses into shutdown, lockdown and into self isolation the strength of businesses and infrastructure around the world is being called into question, and naturally the financial markets the bellwether gauge is showing severe signs of distress. 


As businesses are forced to close, work from home or reduce staff to key workers with many shops, restaurants, theaters and general public facing businesses and services are non operational. This step is essential to deter the spread of the virus and restrictions will likely remain in place for weeks to come, but naturally this halt will come at a huge cost to business from sole traders all the way up to multinational companies. 


The true threat to business has been reflected in the markets with stock markets all in the region of 30-35% down from the highs. In the last week we have seen continual efforts to stem the flow of the markets and more importantly ease the flow of lending in the form of emergency loans to businesses and payment windows to ease the income gap as the economy remains on virtual lockdown. Central banks around the world have been cutting interest rates and issuing quantitative easing programmes as well as additional employment cushion programmes, wage supplementation and direct payments. 


Despite the measures seen so far, the intensity of the virus seen in Italy, the rapid growth of cases seen in Spain, the US and the UK we still open the trading week with stock futures plummeting and hitting the circuit breakers at 5% rather swiftly. So whilst the national pledges are welcomed by the public the markets won't be satisfied until we start to see a turn in the direction of new cases.  


The positive the markets are clinging to is the case of China, whilst the loss and devastation bore saddening lives lost and economic hardship, already we are seeing reassuring progression of activity. It's also notable that 2 weeks after Wuhan went into lockdown the daily number of cases started to fall. Yesterday, after 15 days in lockdown Italy showed its first daily reduction in cases, and whilst the number was just fractionally lower there remains hope that a continuation is seen. 


For nearly a year now we have seen the stock market dictate the pace of the economy, but over the last few weeks as the heath of companies has become the core focus the shift has migrated to the credit markets. There has also been a significant downturn in the Bond market as these once safe assets perhaps seem more of a concern, selling has also been seen in these markets as Funds sell the good to fund the bad stock positions. 


The week ahead will be very much focused on of course head line numbers of cases across the globe and the aid packages offered by governments and central banks. In the UK we await to hear the details of how the government aid scheme will work and in the US Trump will push to get his aid package through Congress. Today we have an emergency G20 meeting early in the US session and its thought pressure will be applied to rectify the Oil dispute which has been detrimental at a perilous time and of course the collective group will discuss methods for stemming the fall of markets. 


Have a safe week.


This week ahead


Chicago Fed National Activity Index – US
Consumer Confidence Flash - Eurozone


Jibun PMI – Japan
Markit PMI – FR, DE, UK, US, Eurozone
Retail Sales – US
New Home Sales – US
Richmond Manufacturing Index - US


Ifo Business Climate – DE
Inflation Rate – UK
Retail Price Index – UK
Durable Goods Orders - US


GfK Consumer Confidence – DE
Loans to Companies & Households – Eurozone
BOW Quantitative Easing – UK


Industrial Profit – China
Nationwide Housing Prices – UK
Personal Income & Spending – US
Michigan Consumer Sentiment – US