DMU – Biggest Stock Fall in US Since 1987; US Finally Assembling Financial Package; G7 Leaders Respond; Airlines in Deep Trouble

Contents

USA – Biggest one-day fall in stock prices since 1987; G7 leaders pledge co-ordinated response; US government finally assembles financial package
UK – Falling pound reduces FTSE 100 losses; FTSE 250 and oil prices plunge
Continental Europe – Stocks reach 11.0% lower before partial recovery; Car manufacturers suffering
Elsewhere – Dreadful Chinese economic data largely already run through stock prices; Slowdown in rate of stock falls today
WTF – The other idiots
Links
Numbers
Ts & Cs

USA

G7 leaders (leaders of what were the seven biggest economies before China marched past most of them) have agreed to do, wait for it, “whatever it takes” to fight the coronavirus. To be fair to them, they did adjust that over-used phrase slightly by saying “whatever is necessary” in their joint statement.

Two of those seven countries are feeling the pressure. Both of those countries have been slow to react. Both of those countries are closing in on the next general election. Those two are Germany and the good old US of A.

The US government finally appears to be creaking into action after lots of hollow, and sometime ridiculous, claims. $50 billion has been pledged for the country’s airlines to help them overcome a chronic loss of business as folk are barred from travelling into various countries.

That forms part of a financial assistance package that the White House is “urgently drafting” according to Reuters.

It comes after yet another brutal day for stock prices. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite each plunged by around 12% on the day as folk reacted with some shock at the drastic action being deemed necessary by the Federal Reserve (the central bank), and doubts over the administration’s ability to cope. That’s the biggest US stock price fall in one day since 1987.

Weird stuff is going on in the fixed income markets. While folk are piling into lower-risk rated investments such as Treasuries (US government bonds), the drop in interest rates by the Fed has muddied the trading waters. It is set to buy lots of bonds (which should push prices up and yields down), but it’s also lowered borrowing costs which is making alternative forms of borrowing cheaper and, unusually, denting the demand for Treasuries.

The falls might slow tomorrow, but we’re faced with a situation in which the worst for the US and Europe appears to be ahead of us. So keep calm and carry on.

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UK

Nerves were fraying across the entirety of Europe yesterday. In the UK, the falling value of the pound went a little way to reduce the rapidly falling price of the FTSE 100. It is dominated by exporters who benefit from a lower value to the pound. But they still got what would be considered a battering on any other day.

The FTSE 100 closed 4.0% lower. The same old travel and leisure stocks took the worst of it again and are now in serious trouble as they ground craft or close hotels and temporarily (?) lay people off.

The FTSE 250 had an even worse time. It has relatively few exporters, so it closed 7.8% lower.

Oil prices continued to plummet as well. They’re now sinking below $30 a barrel; they were bouncing around between $50 and $70 for a year or two. Not any more. Until the Saudis and other oil producers sort out their differences, the over-capacity of oil and low prices will continue.

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Continental Europe

Major national stock indices were trading as much as 11.0% lower during the day. But as the increasingly co-ordinated and pronounced government response develops, investors were slightly less panicky.

By the close of trading the major benchmark indices of the eurozone, Germany and France were trading around 5.3% lower. The Spanish Ibex 35 was a more painful 7.9% lower as it is dealing with a higher number of confirmed virus cases.

The Italian FTSE MIB was 6.1% lower as it deals with loads of people taking the “don’t travel” instruction as a reason to leave the north of the country and travel to family in the south. This has, unsurprisingly led to loads of new cases in the south where the medical resources are not as robust. Smart move guys!

In an example of the implications of the virus, car manufacturers have been reducing production in their factories in Europe. This has affected Fiat Chrysler, Peugeot (not that their cars will be missed much) and Volkswagen. Any transport-related outfit is a step away from needing government support before lots of jobs start to evaporate.

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Elsewhere

Chinese released some frightening economic data yesterday. Industrial production, fixed asset investment (e.g. land and factory equipment) and retail sales were down, not by the 2% to 4% expected. Oh no. Think -13.5%, -24.5% and -20.5% respectively.

If you wanted to see the economic implications of battling the coronavirus, that’s it right there.

Most of that news played out yesterday as well though. This morning we’re seeing a slowdown in falls and some gains. Japanese, Hong Kong, Indian and Australian stocks are higher, while those of South Korea, Taiwan and mainland China are still nudging downwards.

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WTF (What’s The Fact?)

The other idiots

Trump might be the most talented when it comes to talking from any part of his body, but he hails from a long line of greatness.

Here are some other gems:

“Every month that we do not have a recovery package 500 million Americans lose their jobs”
Nancy Pelosi

“Life is indeed precious, and I believe that the death penalty helps to affirm that fact”
Ed Koch (yes, that is his name).

“If Lincoln were alive today, he’d be turning over in his grave”
Gerald Ford.

“I took the initiative in creating the internet”
Al Gore

“Well, when the president does it, that means that it is not illegal”.
Any ideas? Not necessarily whom you might first think.

“I think that gay marriage is something that should be between a man and a woman”
Arnold Schwarzenegger

And here is, the one and only, George W. Bush:
“Our enemies are innovative and resourceful, and so are we.
They never stop thinking of ways to harm our country and our people. And neither do we.”

Beat that, Trump.

Bang on cue, Trump refers to coronavirus as “the Chinese virus”.

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Links

Investopedia – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point
Guffipedia – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies
Guardian – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott)
Times of India – Why use five words when 37 will do?
Daily Mail – Click it. I dare you.

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Numbers
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