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Coronavirus: Stocks plunge despite global central bank action | Coronavirus: Stocks plunge despite global central bank action |
(30 minutes later) | |
Global stock markets have sunk despite central banks around the world announcing a co-ordinated effort to ease the effects of the coronavirus. | Global stock markets have sunk despite central banks around the world announcing a co-ordinated effort to ease the effects of the coronavirus. |
London's FTSE 100 share index fell more than 7% in early trade. Earlier, markets in Asia closed sharply lower. | London's FTSE 100 share index fell more than 7% in early trade. Earlier, markets in Asia closed sharply lower. |
On Sunday, the US Federal Reserve cut interest rates to almost zero and launched a $700bn stimulus programme. | On Sunday, the US Federal Reserve cut interest rates to almost zero and launched a $700bn stimulus programme. |
It was part of co-ordinated action announced alongside the eurozone, the UK, Japan, Canada, and Switzerland. | It was part of co-ordinated action announced alongside the eurozone, the UK, Japan, Canada, and Switzerland. |
However, investors are concerned that central banks now have few options left to combat the impact of the pandemic. | However, investors are concerned that central banks now have few options left to combat the impact of the pandemic. |
In London, shares in airlines saw some of the biggest falls. BA-owner IAG fell more than 20% after it said it would cut its flight capacity by at least 75% in April and May, while EasyJet fell nearly 30% as it said it might have to ground the majority of its planes. | |
All the main European share indexes saw big falls, with France's Cac 40 index down more than 9% and Germany's Dax more than 8% lower. | |
Earlier in Asia, Japan's benchmark Nikkei 225 closed down 2.5%, Hong Kong's Hang Seng lost 4%, and the Shanghai Composite in China ended the day 3.3% lower. | Earlier in Asia, Japan's benchmark Nikkei 225 closed down 2.5%, Hong Kong's Hang Seng lost 4%, and the Shanghai Composite in China ended the day 3.3% lower. |
Why should I care if stock markets fall? | |
Many people's initial reaction to "the markets" is that they are not directly affected, because they do not invest money. | |
Yet there are millions of people with a pension - either private or through work - who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments. | |
So big rises or falls can affect your pension, but the advice is to remember that pension savings, like any investments, are usually a long-term bet. | |
Read more here. | |
On Sunday, the US central bank, the Federal Reserve, cut its interest rates by 100 basis points to a target range of 0% to 0.25% and said it would offer at least $700bn for support to the markets in the coming weeks. | |
It was the first US rate cut outside of a regularly scheduled policy meeting since the global financial crisis in 2008. | |
Speaking after the announcement, Fed chairman Jerome Powell said: "The virus is having a profound effect." | |
But stock markets dived as investors worried that the world's biggest central banks may now have very little ammunition left to deal with the effects of the coronavirus if the global economic climate continues to worsen. | |
"They [the Fed] pulled out whatever weapons they had and my sense is I think it may help initially but I don't think it goes much further because this is still a developing issue. They used up basically all their ammunition and we're down to sticks and stones," said Robert Pavlik, chief investment strategist at Slatestone Wealth. | |
Alongside the Fed, five other central banks - the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada, and the Swiss National Bank - also announced measures to make it easier to provide dollars to their financial institutions facing stress in credit markets. | Alongside the Fed, five other central banks - the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada, and the Swiss National Bank - also announced measures to make it easier to provide dollars to their financial institutions facing stress in credit markets. |
The move was designed to bring down the price banks and companies pay for US dollars, which has surged in recent weeks. | The move was designed to bring down the price banks and companies pay for US dollars, which has surged in recent weeks. |
Andrew Sentance - a former member of the Bank of England's Monetary Policy Committee, which sets interest rates - told the BBC's Today programme that banks were acting to ensure enough credit was flowing. | |
"There was some criticism around the financial crisis that central banks didn't move quickly enough," he said. "I see this as a partly precautionary action for central banks to show that they are doing as much as possible to keep the wheels of the economy turning." | "There was some criticism around the financial crisis that central banks didn't move quickly enough," he said. "I see this as a partly precautionary action for central banks to show that they are doing as much as possible to keep the wheels of the economy turning." |
Mr Sentance added that any further cut to the base rate in the UK, to 0.10% for example, would be "symbolic, because it wouldn't have that much impact on companies or individuals". | Mr Sentance added that any further cut to the base rate in the UK, to 0.10% for example, would be "symbolic, because it wouldn't have that much impact on companies or individuals". |
In other developments on Monday: | |