Governments around the world, therefore have acknowledged this and the vast majority, have therefore announced, huge fiscal packages that will support and help businesses and citizens through this difficult period.
By Andrew Johnston, Portfolio Manager Square Mile
The first three months of 2020 have been amongst the worst for global stock markets in over 30 years, and by some measures, the worst ever. The UK stock market, for example, finished the period down around 25% but at one point had fallen as much as 35%.
The reasons for this are fairly widely known, but in short governments around the world that in order to prevent and stop the spread of the coronavirus, have taken the correct action and decided to suspend huge parts of their society and economies in order to do so. But therefore many businesses are now seeing a shortfall in sales and income. And in some cases falling to nearly nothing overnight, and millions of people now find themselves unemployed.
We are therefore heading into a recession, but unlike 2008 and 2009 this is not a recession that has been caused by excesses in the financial systems such as excessive lending, but one that has been caused by direct government intervention.
Governments around the world, therefore have acknowledged this and the vast majority, have therefore announced, huge fiscal packages that will support and help businesses and citizens through this difficult period. Central banks have also announced huge policy measures such as slashing interest rates to record lows. And pumping the financial system with liquidity to ensure that things keep moving.
Stock markets have reacted well to this unprecedented news and have been rising towards that through the latter stages of March. Furthermore, in Asia, there has been encouraging news out of China where the lockdown measures are being eased and productivity is starting to move back towards pre-crisis levels. In Europe, we are seeing signs that the infection curve is starting to flatten and there are early signs of this too in the US though it is a week or so behind Europe.
There is still undoubtedly bad news still to come. Especially when companies start reporting their sales and profits for the current period and as unemployment will continue to rise.
Therefore, we can’t say that we are now through the period of market turbulence. What we can say is that like all recessions, this recession will pass and we are cautiously optimistic that this one will pass relatively quickly.
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