Financial markets endured another week of extreme volatility as the number of coronavirus cases globally continues to rise. The social-economic trade-off of social distancing adopted by most countries across the globe will significantly impact global economic growth and employment in the first half of this year. To counteract this, major central banks and governments around the world announced measures to support the economy.
Members of G7 stated that they will do whatever is necessary to ensure a globally coordinated response to the coronavirus pandemic and its economic fallout and that they would marshal the full power of their governments to coordinate public health measures, restore confidence in the economy, support global trade and investment, and encourage cooperation in scientific research.
The U.S. called for a $1.2 trillion stimulus plan, European countries announced a combined $1 trillion in new fiscal spending, and the Federal Reserve cut rates by a full 1%, returning its policy rate back to near zero in addition to restarting its bond-buying program.
Meanwhile, the Bank of Japan (BoJ) decided to buy ETFs at an annual pace of around JPY12.00tn, double the previous amount, until markets stabilise from the recent rout and the UK unveiled a rescue package that includes help with mortgage payments, support for airlines, shops and the hospitality industry and 330 billion pounds of government-backed loans for struggling firms.
Even though the current crisis is biological rather than a financial crisis, stimulus measures introduced across the globe are likely to soften the economic fallout and assist with the recovery once infection rates start to subside.
Equities across the globe, endured another week of steep losses. The S&P 500 Index fell back to its lowest levels since early 2017, while the Dow Jones Industrial Average touched lows not seen since late 2016. Year-to-date, most global indices are down in the region of 25-to-35 percent.
The rand lost further ground against developed market currencies, trading at R17.60 to the U.S. Dollar by Friday market close. Brent crude oil futures rose as much as 18% on Thursday following a 24% rout the previous day after President Trump said he may intervene in the price war between Saudi Arabia and Russia by finding "medium ground."
Market Moves of the Week
Locally, the South African Reserve Bank (SARB) slashed the repo rate by 100 basis points to 5.25%, amid concerns about the effect of coronavirus on economic growth. The Bank also lowered its SA GDP forecast from 1.2% in 2020 to -0.2% and sees inflation averaging 3.8% in 2020, below the midpoint of its 3.0% to 6.0% target range.
The head of the Johannesburg Stock Exchange (JSE), told Reuters on Friday the bourse was considering shortening trading hours and banning forms of short-selling to ease the growing liquidity crunch. Since the beginning of February the rand has decreased by more than 15%, bond yields have risen to multi-decade highs and the JSE’s combined market cap has declined from 17 trillion rand at the beginning of the year to 12.5 trillion.
Chart of the Week
In this week’s chart, we look at the S&P 500’s returns in all previous bull and bear markets since the 1930s (a decline or increase of 20% or more). We consider how long, and how severe such downturns typically are. Bull markets tend to last far longer and generate moves of greater magnitude than bear markets. Time after time, bear markets have proven to be good buying opportunities for long-term investors. The problem is that it sometimes takes many years for that opportunity to pay off.
To all those who have been affected by this unprecedented event we wish them good health and a speedy recovery. Please remember to regularly and thoroughly clean your hands with soap and water. Stay home if you feel unwell. If you have a fever, cough and difficulty breathing, seek medical attention. We all have an important role to play in containing and stopping the spread of the coronavirus!
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