Stock Market Won’t Rebound Despite Economic Stimulus Plans, World Will Take “Years To Recover”

Shares in Europe and the US briefly bounced on the news, but fell back.

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Financial markets in Europe and the US have continued to fall despite fresh action by the Federal Reserve to support the American economy.

The US central bank plans to expand purchases of government bonds and mortgage-backed securities and provide new financing for households and firms.

Markets have been hit by concerns about a slowing economy as authorities try to slow the spread of the coronavirus.

In making its announcement, the Federal Reserve said the pandemic was “causing tremendous hardship across the United States and around the world”.

Coronavirus Stock Market
Coronavirus Stock Market

“Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes to promote a swift recovery once the disruptions abate,” it said.

The Dow Jones and S&P 500 fell almost 3% in opening trade in New York, while the Nasdaq was down more than 1.5%.

In London, the FTSE 100 was trading more than 3% lower, while main indexes in Frankfurt and Paris were down about 1.5%. Earlier, Asian stock markets had fallen sharply.

Russ Mould, investment director at AJ Bell, said: “We really are in the thick of a global crisis and markets are showing little sign of optimism as the new trading week gets underway.

“Years to recover”

“Events are moving so fast that it is difficult for investors to truly understand what’s going on with businesses.”

US stocks have already fallen by around a third since the middle of last month, while even areas of investment normally seen as safe havens, such as the bond market, are under stress as hard-hit funds are forced to sell good assets to cover losses elsewhere.

The declines come as countries around the world, including the UK, have announced new measures to slow the spread of the virus, including ordering people to stay at home and closing down bars and restaurants.

UK Prime Minister Boris Johnson has warned “tougher measures” could be introduced if people do not take the government’s coronavirus advice seriously.

The Organisation for Economic Co-operation and Development has warned that the world will take years to recover from the coronavirus pandemic.

Angel Gurría, OECD secretary general, told the BBC the economic shock was already bigger than the financial crisis and it was “wishful thinking” to believe that countries would bounce back quickly.

Stock market
Stock market

Next measures, other markets

In the US, the Federal Reserve has already slashed interest rates and intervened to stabilise debt markets, in an effort to cushion the blow.

On Monday, it said it was also loosening requirements for banks to encourage them to keep lending, while taking steps that would provide up to $300bn more financing for employers and consumers. It also said it was working on a lending programme for small and medium sized businesses.

However, a broader US bailout bill worth almost $2tn being debated in Congress has yet to advance, after congressional Democrats said it would be too generous to big business.

In Asia, the Hang Seng index in Hong Kong fell by nearly 5%, while China’s Shanghai Composite lost 2.4%.

Coronavirus
Coronavirus

New Zealand’s main share index started the day down by more than 10%, but recovered some ground to close 7.6% lower.

The ASX 200 in Sydney dropped more than 7% in early trading and closed down 5.6% at the end of the trading session.

In India, where a 14-hour curfew was announced, its Sensex index fell 10%, triggering a “circuit breaker” and a 45-minute trading halt. It continued its slide to fall 12%.

“It would be a brave, or foolish, man to call the bottom in equities without a dramatic medical breakthrough,” said Alan Ruskin from Deutsche Bank.

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