Although a huge amount of uncertainty remains about the potential duration and intensity of the coronavirus pandemic – and its knock-on effects on the world economy – global stock markets bounced back strongly last week. This was largely the result of policymakers in the United States announcing a massive financial support package for businesses and workers.
Major indices on both sides of the Atlantic recorded double-digit gains from the start of the week until close of trading on Thursday after the Senate in mid-week passed a coronavirus relief bill said to be worth around $2 trillion. As investors woke up on the morning of 27 March 2020, both the S&P 500 and the Dow Jones Industrial Average had recorded their best three-day streaks since the 1930s, rising 14.1% and 16.1% respectively1.
The US
The US government’s aid package includes direct cash payments to millions of employees, an increase in the level of unemployment benefit that can be claimed by jobless workers, plus a $500 billion lending programme for businesses of all sizes. Additional support is being offered to industries which have been most seriously impacted by the coronavirus crisis, most notably aviation – accordingly, the share price of aircraft manufacturer Boeing has almost doubled this week after several weeks of steep decline.
While the aid agreement reached in Washington has been the key driver of global sentiment in the last week, there have been a number of other developments and indicators that have influenced share prices.
On Thursday, leaders of the G20 group of nations said they would also do “whatever it takes”2 to limit the social and economic damage wrought by the pandemic – a sign that the world’s richest countries may increasingly collaborate in their response to coronavirus. US markets in particular were also boosted earlier in the week by the Fed’s announcement that it was introducing an open-ended – or unlimited – asset-purchase programme to pump money into the American economy.
Surprisingly, Wall Street’s momentum appeared to be entirely unchecked by the news that unemployment claims in the US had hit 3.3 million last week – by some distance the highest jobless figure on record.
Europe
Economic indicators in Europe were similarly awful, although far from unexpected. In Germany, the Markit PMI composite index of activity in services and manufacturing fell from 50.7 in February to 37.2; in the UK, the index fell from 53 to 37.1, while in France a figure of 30.2 was also poor.
Nonetheless, stock markets in all three countries bounced back from last week’s losses: the FTSE 100 index in London and Frankfurt’s DAX had both gained 12% by Thursday’s close, while France’s CAC-40 was up 12.2% over the first four days of the week.
In the UK, the pound regained some lost ground against the dollar last week as the British government stepped up its efforts to contain the pandemic by announcing a nationwide lockdown.
Sentiment in Europe has been underpinned to some extent by signs that coronavirus outbreaks in some badly affected areas – Italy in particular – may be close to peaking. However, the highly unpredictable nature of the pandemic – and its economic impacts – means that asset values are likely to remain highly volatile for some time to come.
Global
In Asia, markets largely welcomed news of the US stimulus. However, the Nikkei 225 index in Tokyo fell sharply on Thursday after officials in Japan raised concerns that they were struggling to contain the spread of coronavirus. Finally, oil prices continue to languish around the $27 mark, although there has been no repeat of last week’s slump.
20/03/2020 | 26/03/2020 | Change (%) | |
|---|---|---|---|
FTSE 100 | 5190.78 | 5815.73 | 12 |
FTSE All-share | 2837.05 | 3179.75 | 12.1 |
S&P 500 | 2304.92 | 2630.07 | 14.1 |
Dow Jones | 19173.98 | 22252.17 | 16.1 |
DAX | 8928.95 | 10000.96 | 12 |
CAC-40 | 4048.8 | 4543.58 | 12.2 |
ACWI | 397.12 | 447.31 | 12.6 |
Source: Bloomberg, 27/3/2020.
