The prospect of an imminent global recession sent panic through global markets on Monday, as a rapid sell-off of shares caused trading to be suspended on Wall Street for the third time in little over a week. Fears about the impact of the coronavirus pandemic sent the S&P 500 plunging 9 per cent lower, triggering…
The prospect of an imminent global recession sent panic through global markets on Monday, as a rapid sell-off of shares caused trading to be suspended on Wall Street for the third time in little over a week.
Fears about the impact of the coronavirus pandemic sent the S&P 500 plunging 9 per cent lower, triggering a “circuit breaker” that pauses buying and selling when prices drop too sharply.
In London, the FTSE 100 sunk to its lowest level in more than eight years before paring its losses to end 4 per cent down on the day.
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After the markets closed, Boris Johnson followed other countries in announcing social-distancing measures in an effort to slow the rapid spread of Covid-19.
The prime minister told everyone in the UK to avoid all “non-essential” contact with other people, stop going to pubs and bars, and work from home if they can.
Households in which anyone is showing symptoms of the virus such as a persistent cough or fever are now advised to self-isolate for 14 days.
The unprecedented measures threaten to cause widespread job losses as large parts of the economy are brought to a standstill.
Even before the prime minister announced the new measures, UK hospitality firms had warned that hundreds of thousands of hotel, restaurant and bar jobs could start to go within weeks unless the government steps in to help with wage costs.
Airlines have also called for financial support to help deal with collapsing demand. Virgin Atlantic asked workers on Monday to take eight weeks of unpaid leave over the next three months as global travel restrictions cause a drastic drop in passenger numbers.
Over the weekend, Virgin founder Sir Richard Branson urged the UK government to back a £7.5bn airline industry bailout while train companies also reportedly called for support.
British Airways owner IAG announced on Monday it would cancel 75 per cent of flights and EasyJet said it would have to ground most of its planes. IAG shares fell 27 per cent while EasyJet was down 19 per cent on Monday.
Despite an increasingly dire economic outlook, the prime minister insisted that growth could come “roaring back” if governments take the right measures and work together.
“This is unlike 2008, there isn’t a systemic problem within the economy,” he said. “If we can get the disease under control … then there is absolutely no reason why economies worldwide should not come roaring back.”
There is a growing consensus that to prevent damage to the economy governments will need to spend huge sums, unprecedented in peacetime.
On Sunday, central banks coordinated their efforts to slash interest rates and make more cash available in the hope that cheap borrowing will boost economic activity.
Jerome Powell, chair of the Federal Reserve, warned that the pandemic was having a “profound” impact on the economy as the US central bank slashed interest rates to near zero per cent and announced it would pump more money into the financial system by purchasing $700bn of assets.
Central banks in the eurozone, the UK, Japan, Switzerland and Canada have also announced their own monetary stimulus measures.
Instead of reassuring markets as the Federal Reserve intended, the move appeared to deepen concerns, causing a further sell-off of shares as markets weighed up the damage coronavirus may wreak on a host of companies.
Australia’s main share index suffered the worst day in its 20-year history on Monday as A$162bn (£81bn) was wiped off its value.
Andrew Lowcock, head of personal investing at Willis Owen, warned that there may be worse to come.
“Until we see an end in sight for the virus and the number of infections globally peak, markets are going to be extremely volatile, and its likely going to get worse before it gets better, so investors must brace themselves in the near term,” Mr Lowcock said.
“However, once the infection rate peaks and the world gets back to some semblance of normality, markets could snap back as fast as they fell.”
Trying to time when that might be is “impossible”, he said.
With central banks now running out of ammunition as interest rates hit historic lows, pressure is mounting on governments to take decisive action to spend money in support of their respective national economies.
Denmark’s government cut a deal with unions and companies that will see that state pay 75 per cent of wages for private-sector employees whose jobs are at risk due to coronavirus.
For three months, the government has offered to pay three-quarters of employees’ salaries up to 23,000 Danish crowns (£2,800) per month, while companies pay the remaining 25 per cent.
Employees will give up five days of paid holiday or work five days for free under the plan.
“If there’s a big drop in activity, and production is halted, we understand the need to send home employees. But we ask you: don’t fire them,” Danish prime minister Mette Frederiksen said on Sunday.
Denmark entered a lockdown on Saturday, shutting down its borders for a month and urging citizens to stay in their homes.