Coronavirus: global markets update

Last updated at 20:00 GMT

The effect of coronavirus continues to be felt throughout the global economy. Rising numbers of confirmed cases in several countries have continued to have an impact upon market confidence as well as business activity. Both supply and demand have been hit in the world’s major economies – from Japan and China to the US and Europe.

Despite this, the anticipation that governments and central banks will now intervene to cut interest rates, inject liquidity, and cushion the impact of the crisis has caused several markets to rally slightly. Asian stock markets have enjoyed a boost and London’s FTSE 100 index has enjoyed a slight rise this morning.

The World Health Organisation’s latest figures on the human impact of coronavirus reveal that the total number of COVID-19 cases reported globally to date stands at 89, 779. Of these cases, 3,069 people have died and 45, 512 have made a full recovery.

In the UK, the number of confirmed cases rose by more than 50% yesterday to 36, including a second person who has contracted the virus from inside the UK itself. This is still nowhere near as bad as in South Korea and Italy, which now have over 4,000 and 1,700 recorded cases respectively.

The London Stock Exchange opened at 8am and the FTSE 100 quickly jumped up by 2.8%. This spike reflected the markets’ anticipation of actions being prepared by the Bank of England, the Treasury, and the Financial Conduct Authority to soften the economic impact of the virus. The FTSE gradually declined throughout the morning, dipping into the red at lunch time, before finally bouncing back after lunch to leaving it up at 1.13% at the end of trading.

The Centre for Economic and Business Research estimate that the greatest risk to the UK comes from Italy, which is a popular tourist location for British citizens throughout the year. They estimate that nearly 15,000 Londoners are likely to have travelled back from Italy in the past two weeks. The CEBR predict that, if the capital were to be put under lockdown (a worst-case scenario), the UK economy would lose a total of £495 million every day.

The Italian government has announced plans to inject EUR 3.6 billion into their economy, which had already contracted by 0.3% in the final quarter of 2019.

Stock markets have bounced back in hard-hit South East Asia, as governments announced their preparedness to provide stimulus packages and ease interest rates. The Bank of Japan’s Governor, Haruhiko Kuroda, has pledged to take measures to stabilise financial markets.

Japan’s Topix and China’s CSI of Shanghai and Shenzhen listed stocks have rallied in anticipation of these measures, with the former closing up 3.3% at the close of trading and the latter making a more modest rise of 1%.

The US economy is also showing serious signs of the coronavirus taking its toll. According to Ian Stewart, Deloitte’s chief economist in the UK, last week’s sell-off in US equities was the sharpest correction since the Great Depression in 1933.

US Treasury bond yields – a benchmark for the health of the US economy – continued to fall. They hit a record-low settling price today after falling as low as 1.031%, according to Tradeweb, down from 1.127% on Friday. Most recently, it stood at 1.083%.

The Federal Reserve is expected to cut interest rates by 0.5% to combat this, and last Friday, the Chairman of the Fed issued a statement saying that the US’s central bank would take necessary measures to support the economy. America’s central bank is set to use fiscal firepower and stimulus to counteract the looming possibility of recession.

The US stock market has rallied, partly because investors have switched to safer assets but also in anticipation of the Fed’s rate cut. The Dow Jones Industrial Average looks set to add about 2%, despite taking a small dip earlier in the day. The S&P 500, Nasdaq Composite, and NYSE composite have meanwhile, has recovered some ground from Friday’s dive. At the time of writing, they are all back in the green and making gains.

Jan Hatzius, chief economist at Goldman Sachs, has said that “the easing we expect over the next several weeks” will occur “in coordinated fashion’, and could take place “as early as the coming week.” Goldman expect that similar easing measures will be taken by governments in the UK, Australia, New Zealand, Norway, India, South Korea, as well as the ECB and Swiss National Bank, and anticipate similar results to what has happened in Asia.

Other economists believe that rate cuts and stimulus plans won’t solve the conundrum presented by coronavirus in the long run, however.

Andrea Carzana, an equity fund manager for Columbia Threadneedle Investments, has welcomed the prospect of lower borrowing costs for businesses. But he has also added a cautionary note: “If companies need to shut down because of the virus it doesn’t really matter how much liquidity you put into the system”.

The Wall Street Journal points out that what is so disruptive about coronavirus in its economic impact is how it has shaken both supply and demand across industries and continents.

As well as global supply chains being severely disrupted, global shipping is down – the Baltic Dry Index shows that there has been a two-thirds drop in vessel leasing rates since the start of December.

The OECD has published an updated economic forecast for the global economy this morning. Their interim growth report warns that coronavirus now presents the “biggest danger” to the global economy since the Global Financial Crisis of 2008. The organisation now predicts that annual global GDP growth could drop to 2.4% in 2020 as a whole, down from an already weak 2.9% in 2019.

Capital Economics cut its global growth forecast by 0.4 percentage points to 2.5 percent for 2020, in what the IMF considers to be recession territory.

The Financial Times reports that Jennifer McKeown, head of economic research at Capital Economics, has cautioned that if the coronavirus outbreak becomes a global pandemic, the effect “could be as bad as 2009, when world GDP fell by 0.5 percent.”