The us
Wall Street was the most notable loser among global stock markets last week, with both the Dow Jones Industrial Average and S&P 500 indices recording their worst seven-day performance since the depths of the financial crisis in 20081.
The spread of the coronavirus pandemic in the United States coupled with concerns about the effectiveness of the government’s response saw the Dow fall by more than 17% over the course of the week ending 20 March, effectively erasing all of the gains made since Donald Trump was elected president in 2016. The S&P 500 lost 15% over the course of the week.
The falls came as US states introduced a series of restrictions on the movement of citizens and the ability of businesses to operate: these are particularly strict in New York and California. The Trump administration admitted the US was now likely to enter recession and over the weekend Federal Reserve Bank of St. Louis President James Bullard predicted the unemployment rate could hit 30% in the second quarter of 20202.
At the start of the week, the Federal Reserve announced a series of monetary policy measures designed to improve liquidity in the economy, but this did little to shore up share prices.
Wall Street’s ability to bounce back, at least in the short term, will depend to a large extent on the size and scope of the rescue package for individuals and businesses currently being hammered out in Washington.
Europe
In Europe, a combination of central bank activity and the announcement of stimulus packages aimed at mitigating the pandemic’s impact on business and boosting welfare support helped to limit stock market losses.
In the UK, the FTSE 100 index of leading companies closed on Friday at 5190.78 – 3.3% lower than a week earlier – and it is a sign of the times that what would have been a shocking plunge in normal circumstances was in fact widely seen as a resilient performance.
The FTSE was helped by the Bank of England’s decision to further reduce interest rates and ramp up its quantitative easing programme, as well as the package of fiscal support measures outlined by chancellor of the exchequer Rishi Sunak on Tuesday. These included loan guarantees for businesses worth up to £330 billion as well as other tax reliefs. After markets in London closed on Friday, Sunak revealed additional assistance, including the news that the government would underwrite 80% of workers’ salaries in a bid to avoid mass lay-offs.
Another element of support for the FTSE was the fall in the value of sterling, which hit its lowest level against the dollar since 1985 on Wednesday as markets questioned how the UK government intended to finance its support packages. With the majority of companies included in the FTSE 100 deriving revenues from overseas activity, a weaker pound tends to drive the value of the index higher, other things being equal.
Elsewhere in Europe, the European Central Bank’s decision to scale up its own quantitative easing efforts were welcomed by investors. Losses on the CAC-40 in Paris were restricted to 1.7% for the week after president Emmanuel Macron pledged to shore up the French economy through the crisis “whatever the cost”. In Germany, the government unveiled a similar package of measures while the European Commission said it would relax rules on state aid to allow EU member states to provide extra support.
Global
MSCI’s global index, the ACWI, shed 12% of its value over the week, reflecting the losses on Wall Street as well as turbulence around the world, including in Asian markets.
The price of oil continued to fall due to the expected slump in global economic activity and the ongoing Russia-Saudi Arabia price war: by the end of Friday, Brent crude futures were down by more than a fifth on a week earlier, closing at just under $27.
13/03/2020 | 20/03/2020 | Change (%) | |
---|---|---|---|
FTSE 100 | 5366.11 | 5190.78 | -3.3 |
FTSE All-share | 2994.4 | 2837.05 | -5.3 |
S&P 500 | 2711.02 | 2304.92 | -15.0 |
Dow Jones | 23185.62 | 19173.98 | -17.3 |
DAX | 9232.08 | 8928.95 | -3.3 |
CAC-40 | 4118.36 | 4048.8 | -1.7 |
ACWI | 451.09 | 397.12 | -12.0 |
Source: Bloomberg, 27/3/2020.