Friday 13 March 2020
BUSINESS DAY
46
FINANCIAL TIMES
COMPANIES & MARKETS
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US stocks plunge 8% as European markets face record fall Trump’s travel ban heaps further pressure on already fragile market Hudson Lockett, Leo Lewis, Adam Samson and Philip Georgiadis
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uropean shares were on track for their worst ever daily loss and Wall Street stocks tumbled 8 per cent on another chaotic day as investors feared economic dislocation stemming from the outbreak of the coronavirus. The S&P 500 dropped 8.1 per cent, having triggered a marketwide trading curb designed to smooth extreme market volatility on Wall Street for the second time in a week. The “circuit breaker” halted trading for 15 minutes. The drop left the S&P 500 on track to enter a bear market, having plummeted more than a fifth from its February record high as global stocks convulse through their heaviest selling since the financial crisis more than a decade ago. Markets across Europe saw even heavier selling than during the 2008-09 crisis, with the regional Stoxx 600 index down more than 10 per cent and on track for its worst ever day’s trading. Stocks in the region plumbed new lows after the European Central Bank announced a package of easing measures but kept rates on hold at minus 0.5 per cent. Markets had been pricing in a 0.1 percentage point rate cut, and the reaction suggests investors were hoping for more from the central bank. This week’s intense sell-off suggested investors were bracing themselves for a worst-case scenario, including a global recession, the
A trader reacts as he works on the floor of the New York Stock Exchange on Tuesday © Reuters
lockdown of major urban centres and a severe credit crunch, Nomura strategist Masanari Takada said. “The market has been jolted to the point of breaking,” he added. In a sign of the velocity of this month’s tumble, Europe’s Stoxx 600 index has shed 18 per cent of its value this month, leaving it on track for the heaviest fall since the 1987 Black Monday crash. Travel and leisure stocks came under acute pressure. The Europewide index tracking the sector was down 11 per cent, leaving it off more than a third for 2020. “Although we have seen some stimulus measures from policymakers, it is unclear if it will prove comprehensive enough to mitigate the economic damage arising from
coronavirus containment measures,” said Mark Haefele, chief investment officer at UBS Wealth Management. The sharp moves lower for global stocks followed US president Donald Trump’s announcement of a travel ban in a televised address late on Wednesday after the World Health Organization said the crisis was now a “pandemic”. “This was the most expensive speech in history,” said Luca Paolini, chief strategist at Pictet Asset Management, pointing to the slide in the value of US stock futures as President Trump spoke. “Investors are voting with their feet, and I can’t blame them. Markets wanted reassuring, and this was not reassuring.”
The latest wave of selling also came as one of Wall Street’s biggest banks warned trading conditions in US government bonds have worsened meaningfully in this week’s market tumult. Treasuries, the world’s biggest debt market and an essential benchmark for other assets, became “overwhelmed by liquidity concerns” during a hectic trading day on Wednesday, Bank of America said in a note to clients. The bank called on either the Federal Reserve or Treasury to act quickly to stabilise the market. The 10-year US Treasury yield was down 17 basis points on Thursday to 0.65 per cent, pointing to a strong rally in price. The yield still remains well above the low struck
on Monday of 0.32 per cent. The corporate fallout of the viral outbreak deepened on Thursday. Cineworld, the world’s secondbiggest cinema chain, warned that in a worst-case scenario coronavirus disruption could cause it to be unable to pay its debts and call into question its ability to continue trading. Oil prices, which crashed at the start of this week on the prospect of a price war between Saudi Arabia and Russia, fell on the expectation the ban would mean more pain for the travel industry. International benchmark Brent crude was down 7 per cent at $33.10 a barrel. Mr Trump’s comments also caused sharp gains for Japan’s yen, which firmed as much as 1.4 per cent after the president’s announcement and is now trading near ¥104 per dollar. The yen, often viewed as a haven during times of stress, has surged in recent days. Dealers have speculated that Japanese authorities may engage in forms of stealth intervention to soften any move to ¥100 per greenback. The Topix index, which closed 4.1 per cent lower on Thursday, is down by almost a quarter from its recent peak on February 6, putting the benchmark on track for its worst year since the 2008 global financial crisis. Equities sold off across the AsiaPacific region with China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks finishing down 1.9 per cent and Hong Kong’s Hang Seng falling 3.7 per cent. In Sydney the S&P/ASX 200 index closed down 7.4 per cent.
ECB launches stimulus package to combat coronavirus ‘shock’ Lagarde bids to ease blow to eurozone economy but holds off on rate cut Martin Arnold
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he European Central Bank has launched a package of measures to shield the eurozone from the economic havoc created by coronavirus, further loosening its already ultra-easy monetary policy with a planned €120bn of bond purchases and more cheap loans to banks. However, in its first monetary stimulus move since Christine Lagarde became its president in November, the bank kept its main deposit rate unchanged at its existing record low level of minus 0.5 per cent. The ECB announced an increase in its quantitative easing programme of asset purchases to buy €120bn more bonds by the end of this year, on top of its existing commitment to buy €20bn a month. It also said it would launch a new programme of cheap loans to banks to encourage them to keep lending to small businesses. Economists estimate the scale of the ECB’s quantitative easing
programme will rise to €33bn a month for rest of this year. Speaking at a press conference after announcing the decision on Thursday, Ms Lagarde said coronavirus was “a major shock” to the eurozone’s growth prospects. There will be significant disruption to economic activity, particularly a slowdown in production and a reduction in domestic and foreign demand, she said, calling for fiscal action from governments. “An ambitious and co-ordinated fiscal policy response is required to support businesses and workers at risk,” said Ms Lagarde, adding that the spread of the virus would have a “significant impact” on the eurozone and global economies, even if it was “temporary by nature”. The ECB’s new measures would help to support the supply of credit to the real economy, she said. However she emphasised that she did not believe central bankers could address the economic consequences of coronavirus on their own. “We will only deal with www.businessday.ng
this shock if we come together,” she said. Asked whether she would compare this moment to her predecessor Mario Draghi’s efforts to save the eurozone economy during the bloc’s sovereign debt crisis, she said: “I don’t want to be ‘whatever it takes’ number two.” Pressure had been rising on the ECB to take action after the Bank of England and the US Federal Reserve both announced emergency rate cuts and other measures in response to the economic impact of coronavirus in recent days. Carsten Brzeski, economist at ING, said: “Today’s measures are an attempt to tackle market turmoil and support the economy. In a targeted manner and not with a whatever-it-takes attempt.” The package was met with a mixed reaction from investors, as European stock markets continued to fall while the euro was little changed against the US dollar and German two-year bond yields rose slightly. Andrew Kenningham, chief Europe economist at Capital
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Economics, said: “While these measures are pretty substantial, we do not think the ECB will be able to change investor sentiment any more than the Fed could last week.” The ECB said in a statement: “Although the governing council does not see material signs of strains in money markets or liquidity shortages in the banking system, these operations will provide an effective backstop in case of need.” In response to calls from banks for authorities to ease capital requirements to allow them to absorb the expected hit of the virus, the ECB said it would allow lenders to “fully use capital and liquidity buffers” that were designed to be eroded during times of stress. The ECB, which supervises the 117 biggest eurozone banks, said it would “consider operational flexibility in the implementation of bank-specific supervisory measures”. The central bank said it would launch a new programme of cheap @Businessdayng
loans for banks “to provide immediate liquidity support to the euro-area financial system” and to “provide an effective backstop in case of need”. The new longer-term refinancing operations (LTRO) will be a temporary measure until June, when the central bank plans to offer more loans to banks under its existing refinancing programme on sweetened terms. Its existing targeted longerterm refinancing operations (TLTRO) will be made “considerably more favourable” by offering loans to banks below the ECB’s sub-zero deposit rate and as cheaply as minus 0.75 per cent. The decision makes the ECB the first major central bank to operate such a “dual rate” system, which in effect subsidises banks by lending to them at a lower rate than they pay to deposit money at the central bank. The ECB will also increase the amount banks can borrow and ease the definition of collateral that banks can offer to secure the loans.