The spread of the coronavirus and the economic consequences are causing share prices worldwide to fall significantly at the end of the week. The turmoil in the markets is spreading to government bond markets on both sides of the Atlantic.
Fears of a global economic downturn due to the coronavirus epidemic have taken hold of the stock markets again. “Investors’ nerves are on edge,” says analyst Jochen Stanzl of online broker CMC Markets. “The financial aid measures now announced make it clear how seriously central banks and governments are assessing the economic consequences of the epidemic. However, it is questionable whether they will be sufficient to prevent a recession in important parts of the world.
This pushed the Dax down by more than four percent on Friday to a seven-month low below 11,500 points. By the end of trading the Dax had recovered to 11,541.87 points, ultimately losing 3.37 percent. On a weekly basis, this represents a loss of 2.9 percent. In just two weeks, the Dax has now lost a good 2000 points. Just three weeks ago it had reached a record of 13,795 points. This level is unlikely to be reached again so soon.
The EuroStoxx50 lost a similar amount to 3266 points. The American stock markets initially slumped despite surprisingly strong labour market data. The Dow Jones index of blue chips and the broader S&P 500 fell at times by three percent each to 25,345 and 2935 points.
In the end, however, a nervous trading day came to a relatively conciliatory end. In the last hour of trading, the US stock market barometer managed to contain its losses significantly. The Dow closed with a minus of 0.98 percent at 25 864.78 points. In the course of the week this even means a plus of 1.8 percent. However, in the last week of trading in February, it had also suffered a massive loss of just over 12 percent.
The S&P 500 dropped by 1.71 percent to the 2972.37 level on Friday. The technology-heavy Nasdaq 100 lost 1.63 percent to 8530.34 points.
Investing pays for security
In February, 273,000 new jobs were created in the US labour market, while economists surveyed by Reuters had expected only 175,000. Against the background of the rapidly spreading virus epidemic, stock market experts nevertheless expect the Fed to cut interest rates further at its regular meeting on March 18.
At the same time investors fled to “safe havens” such as government bonds. This pushed the yield on ten-year US bonds to a record low for the tenth time in eleven days. With a decline from 0.925 to 0.739 percent, they also headed for the biggest daily decline since at least 1953. Comparable German government bonds yielded a return of minus 0.746 percent. This was below the previous low of minus 0.743 percent of last September, when the brexite and the tariff dispute between the USA and China had unsettled investors. The interest rate for 30-year-old stocks also marked new lows on Friday.
A bond yield below zero percent means that investors will have to pay to lend money to a state. They accept this because they fear even greater losses in other asset classes such as equities.
The “anti-crisis currency” gold was also in demand. The precious metal rose by up to 0.8 per cent to 1683.02 dollars per troy ounce (31.1 grams) and was only about five dollars below its seven-year high in February.
Tokyo clearly in the red
In Asia, the stock markets also closed down on Friday after a slight recovery in the middle of the week. In Tokyo, the Nikkei fell by 2.72 percent by the end of trading, while the Hang Seng index in Hong Kong fell by 2.3 percent. Prices on the Shanghai stock exchange fell by 1.21 percent.
On the foreign exchange market, investors bought Swiss currency. This pushed the dollar down to a two-year low of 0.9391 francs. The US currency was under pressure overall because, despite Tuesday’s emergency interest rate cut, investors firmly expect a further interest rate cut of half a percentage point at the upcoming consultations in mid-March. These speculations pushed the dollar index, which reflects the exchange rate against important currencies, to an eight-and-a-half month low of 96.241 points.