Coronavirus Outbreak Crashes Global Stock Markets
United States Stocks Face the Worst Fall Since 1987
Despite many desperate coordinated attempts made by central banks around the world to ease the effects of the Coronavirus on the world economy, it seems that the world economy is further suffering as global stock markets face yet another crash.
The end of last week saw an unprecedented drop in global stocks, with the Dow Jones index closing 12.9% down after the current sitting president of the United States, Donald Trump, announced the possibility of recession for the American economy.
European markets such as London’s FTSE 100 have also seen drops, ending 4% lower with many other European stock markets, especially the DAX, which saw similar slides. The sudden collapse in stock prices marks the worst fall in United States stocks since 1987.
In retaliation to the unprecedented drop in stock prices, the United States Federal Reserve has cut down interest rates to a long term record low of a range between 0% to 0.25%. In addition, a $700 Billion USD stimulus programme has been launched in a bid to protect the economy from the outbreak. This decision was a part of a co-ordinated action announced alongside the European Union, the UK, Canada, Switzerland, and Japan. While these actions may undoubtedly help the economy in the short term, these actions have raised many concerns amongst investors.
Primarily, the desperate actions taken by central banks have caused investors to worry that governments now have few options to combat the impact of the pandemic on the global economy. Furthermore, these actions have caused many investors to believe that the economic impacts of the virus could potentially be much more significant than originally predicted.
These worries are supported by Jerome Powell, chairman of the Fed, who stated in a press conference that the pandemic was having a “profound” effect on the US economy. He further stated that while it is currently too early to tell just how severe the impact will be, it is “clear” that there will undoubtedly be further devastating impacts to the global state of the economy.
“While central bankers may be trying to calm the markets, in reality it is having the opposite effect,” stated David Madden, a market analyst at CMC Markets. “The radical measures have sent out a very worrying message to dealers, and that is why they are blindly dumping stocks.”
With rising concerns amongst investors, experts cite the US government’s use of an unscheduled rate cut as an indicator that this economic crisis may be very reminiscent of the 2008 financial crisis, which poses the threat of another global recession.
“Desperate times call for desperate measures.” Stated Greg McBridge, the Chief Financial Officer of Bankrate.com, “and the Fed is doing just that in an effort to keep credit markets functioning and prevent the type of starving of credit that nearly toppled the global economy into a depression in 2008.”
McBridge continued to speak on the matter of actions taken by the Fed, stating that while reducing interest rates to borrowers will ease the burden of existing debts slightly, it is highly unlikely to spur the usual surge of borrowing as consumers and businesses batten down the hatches for an expected coming drop off in US economic activity.
While the full impact of the Coronavirus on the global economy is currently impossible to estimate, one thing can be for certain- the possibility of a global recession is real, and is very, very, close.
