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US and European markets plunge further after Trump travel ban US central bank gives markets $1.5tn injection
(about 4 hours later)
Fallout from investor panic brings total loss on FTSE since January to more than £500bn Moves aims to quell investor panic after FTSE 100 suffered its worst day since 1987
Stock markets in the US and Europe plunged further on Thursday as Donald Trump’s unilateral ban on travel from 26 EU countries sparked panic from investors, bringing the total loss on the FTSE since January to more than £500bn. The US central bank is injecting $1.5tn into markets in a bid to quell investor panic after a day of turmoil that included the FTSE 100 suffering its worst day since 1987 and the European Central Bank inadvertently stoking alarm over the economic consequences of the coronavirus pandemic.
The US benchmark index, the S&P 500, lost 8.2% of its value in 30 minutes, triggering automatic halts in trading on Wall Street for the second time in a week. The Dow Jones industrial average dropped by more than 2,000 points in early trading to below 21,500 points – a fall of 8.8%. The Fed said it would offer three blocks of $500bn into the repo market, which allows banks and financial institutions to exchange government bonds for cash, in a signal that the financial system has been coming under severe strain. In statement the FEd referred to “highly unusual disruptions” in the markets due to Covid-19.
Britain’s FTSE 100 index lost 9% at points on Thursday afternoon, putting it on course for its worst day since the market crash of 1987. The market value of companies listed on the FTSE 100 has fallen by more than £500bn since the index’s peak in January, before the severity of the coronavirus outbreak was evident. The pound also suffered, falling 1.6% against the US dollar to $1.262 as investors sought safety. Stock markets in the US and Europe plunged on Thursday as Donald Trump’s unilateral ban on travel from 26 EU countries sparked renewed panic and investors looking for safe havens as they prepare for recessions across the world.
The Euro Stoxx 600 index, which tracks the biggest listed companies in the UK and eurozone, fell by 10% in afternoon trading, putting it on course for its worst day ever. The US benchmark index, the S&P 500, clawed back losses after the Fed announcement to be down a still significant 7%, having triggered a halt in trading on Wall Street earlier in the day – the second in a week. The Dow Jones industrial average dropped by more than 2,100 points in morning trading to below 21,400 points, but was still 1,870 points down following the Fed intervention – down nearly 8% .
Britain’s FTSE 100 index lost 10.87% on Thursday, its worst day since the market crash of 1987 and the second worst since it was founded at the start of 1984. The market value of companies listed on the FTSE 100 has fallen by more than £540bn since 21 February, before the severity of the coronavirus outbreak was evident.
The pound also suffered, falling 1.8% against the US dollar to $1.259 – its lowest since October – as investors sought safety. The rush to buy dollars also pushed down the euro by 1.5%, back below $1.11.
The Euro Stoxx 600 index, which tracks the biggest listed companies in the UK and eurozone, fell by 11.5% in afternoon trading, putting it on course for its worst day ever. Italy’s FTSE MIB index lost 17%, its worst day ever.
The widespread losses came despite the European Central Bank on Thursday becoming the latest central bank to unveil its response to the coronavirus outbreak, following the US Federal Reserve and the Bank of England, which announced an emergency cut in interest rates on Wednesday.The widespread losses came despite the European Central Bank on Thursday becoming the latest central bank to unveil its response to the coronavirus outbreak, following the US Federal Reserve and the Bank of England, which announced an emergency cut in interest rates on Wednesday.
The ECB’s stimulus measures to try and prop up the economy included loosening restrictions on lending by eurozone banks and buying more private sector bonds.The ECB’s stimulus measures to try and prop up the economy included loosening restrictions on lending by eurozone banks and buying more private sector bonds.
However, the ECB president, Christine Lagarde, did not unveil the interest rate cut expected by many – an acknowledgement of the limited room for manoeuvre for central banks after a decade of low interest rates. However, the ECB president, Christine Lagarde, did not unveil the interest rate cut expected by many – an acknowledgement of the limited room for manoeuvre for central banks after a decade of low interest rates. Instead, she called for eurozone governments to step in with increased spending.
Lagarde said: “It’s clear to us that the economies of the world and the economies of the euro area are facing a major shock.”Lagarde said: “It’s clear to us that the economies of the world and the economies of the euro area are facing a major shock.”
Investors have rushed to put their money into the relative safety of government bonds. Yields on benchmark bonds, which move inversely to prices, have plummeted. Banks and other financial stocks were among the most heavily hit. In London, shares in Barclays fell by 17% to its lowest since 2009, as the financial crisis raged, and Lloyds Banking Group lost 12%.
Europe’s Stoxx banks index fell by 15%, with Deutsche Bank shares falling 18% to a record low below €5.
The stimulus efforts also failed to sustain oil prices, which have been hit by fears over a recession and a price war between Saudi Arabia and Russia. Futures prices for Brent crude oil, the North Sea benchmark, fell by 7% to $33.30 per barrel.
Investors have rushed to put their money into the relative safety of government bonds. Yields on benchmark bonds, which move inversely to prices, have plummeted in recent weeks. The US 10-year Treasury yield fell back towards record levels, hitting a low of 0.636%.
Holger Schmieding, an economist at Berenberg investment bank, said the ECB would not be able to avert a recession in the eurozone. However, he said “the ECB package and further steps by bank supervisors as well as by fiscal policy, can limit second-round effects”.Holger Schmieding, an economist at Berenberg investment bank, said the ECB would not be able to avert a recession in the eurozone. However, he said “the ECB package and further steps by bank supervisors as well as by fiscal policy, can limit second-round effects”.
He added: “The ECB today has made it even less likely that the severe Covid-19 shock to the real economy could morph into a financial crisis.”He added: “The ECB today has made it even less likely that the severe Covid-19 shock to the real economy could morph into a financial crisis.”