Asian Shares Plunged Overnight, European Shares Are Rocking Again on Thursday
Markets.com | Mar 12, 2020 07:46
When Prince Albert died of typhoid in 1861 at the age of 42, it shook the elite of Victorian Britain to their bones. Even a royal could succumb to a disease that killed thousands of poor people each year. Americans will be no doubt very concerned to learn that Tom Hanks and his wife have been diagnosed with coronavirus. In the UK, a member of the Cabinet has self-isolated after coming into contact with Nadine Dorries, the public health minister who has the virus. Yesterday 650 MPs crammed into a cramped Petri dish of a chamber.
The World Health Organisation has finally declared the outbreak a pandemic – this is only going to force governments to feel they need to take more draconian measures, ramping up the uncertainty and the near-term economic shock. Volatility is not going anywhere, and we again see global stock markets tumbling on Thursday.
So much for Trump’s stimulus. Instead of his late-night presidential address calming things, it only fanned the flames raging in markets. The president has gone from calling it a Democrat hoax to banning all travel from Europe in just 12 days.
A 30-day European travel ban didn’t allay market fears that this virus is spreading very fast and will wreak economic havoc. Indeed, it actually makes the economic harm greater, at least in the short term. The WHO, which finally labelled the Covid-19 outbreak a pandemic, advises against travel bans. Meanwhile the lockdown in Italy tightens – all but essential services are now shut. The rest of Europe may be swifter to act – no one wants to be the next Italy. Chicago-based exchange CME Group (NASDAQ:CME) says it will shut its trading floor at the end of the week.
The Dow sank almost 1500 points to close in a bear market. The S&P 500 5% lower at 2741, just above key support at 2734.
Futures plunged further after Mr Trump’s address, taking SPX below 2640 as of send time. The next Fibonacci support rests around 2550.
There is a good chance today US equity markets trigger another circuit breaker and there is a possibility the Fed also steps in again.
Asian shares plunged overnight. European shares are rocking again on Thursday and seem set to open about 5% lower with the FTSE 100 testing the 5500 level. The DAX is flirting with 9800, well below the Dec 2018 lows.
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ECB meeting on tap
This will be the moment for Christine Lagarde to deliver a ‘whatever it takes’ moment. The problem is the ECB has very limited scope to act, with rates already deeply in negative territory. It has little ammo left and faces a double supply and demand shock that normal economic policies cannot really do much about.
There is a high probability the ECB will cut rates to –0.6% and add €20bn to QE. On its own, it won’t amount to much, but it has to be seen to be acting. The ECB is also likely to launch a new LTRO for SMEs, cut the TLTRO rate and raise the tiering multiplier to reduce the impact on banks of negative rates.
EURUSD is up at 1.13 as of send time, bouncing off support at 1.1250 yesterday. Resistance at 1.1330.
Equities
The US ban on European travel is simply hideous for the flag carrier airlines. A knock to the Transatlantic business was the big fear and is going to add to fears that this outbreak will lead to lasting damage. The 30-day ban could be extended - once in place you need to be sure it’s safe to lift before you do so. Whilst it may or may not be the sensible decision, it’s economically very damaging and is another nail in the airlines’ coffin. Chinese airlines took a $3bn hit from the loss of capacity in February, an indication of what’s in store for European carriers.
Budget - Whilst a positive and decisive dose of economic stimulus is exactly what’s required, this was one for SMEs. Picking through it we didn’t see much support for larger listed companies. No business rate relief for the likes of Tesco (LON:TSCO), no great home building splurge yet.
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