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Markets hit by further losses despite US interest rate cut Markets plunge despite coordinated action by central banks
(about 4 hours later)
Willie Walsh, the CEO of BA owner IAG, to delay retirement on back of coronavirus crisis Sharp losses recorded despite US interest rate cut and as Bank of England hints at further support to combat coronavirus turmoil
Global financial markets have suffered further heavy losses despite the US Federal Reserve slashing interest rates to near zero to shore up the US economy in the face of the escalating Covid-19 crisis. Mounting concerns over a possible global recession have sent financial markets around the world plunging, despite a coordinated effort by central banks to protect growth and jobs, amid the widespread disruption caused by the coronavirus outbreak.
In an escalation of the worst turmoil since the 2008 financial crisis, stock markets suffered further sharp losses despite dramatic action taken by the US central bank late on Sunday. The Federal Reserve slashed interest rates to near zero in an unprecedented attempt to shore up the US economy amid travel bans and quarantine measures.
The FTSE 100 index tumbled almost 8%, taking it below the 5,000 level to 4,898, its lowest level since October 2011. Shares in Germany tumbled by 6% and there were losses of 5% in Spain and Italy, and 3% in France. Andrew Bailey, the new governor of the Bank of England, dropped a heavy hint that Threadneedle Street would step in with further support for the British economy after slashing interest rates last week alongside the government’s expansionary budget.
Asian stock markets had plummeted earlier, with Japan’s Nikkei down by almost 2.5%, Hong Kong’s Hang Seng by 3.7% and Australian shares by almost 10%. On Wall Street, futures for the benchmark S&P 500 Index fell 5%, triggering a halt in trading. Speaking on his first day as governor after replacing Mark Carney, Bailey said the Bank wanted to minimise the lasting damage to Britain, adding: “That’s why you saw prompt action last week, that’s why you will see prompt action again when we need to take it. The public can be assured of that.”
Leading the fallers on the FTSE 100 index was the travel company Tui, which collapsed by 38%. TUI announced at the weekend it was temporarily suspending the “vast majority of all travel operations until further notice”. In London the FTSE 100 index tumbled almost 8% in early morning trading, taking it below the 5,000 level to 4,898, its lowest since October 2011, before recovering some ground to trade down around 6.5%.
Airline stocks suffered sharp losses, with easyJet down by 30% and the British Airways owner, IAG, down by 20%. The gambling company Flutter fell 15% after a profit warning and the catering firm Compass lost 15%. As investors rushed to buy assets considered as safe-havens in times of stress, including US and German government bonds, shares across Europe fell under heavy selling pressure. Stocks in Germany tumbled by 7.5% and there were losses of more than 8% in Spain, Italy and France.
Alongside its second emergency rate cut on Sunday night, the Fed also said it would buy $700bn (£560bn) in Treasury and mortgage-backed securities as it attempts to head off a severe slowdown. Asian stock markets had plummeted earlier, with Japan’s Nikkei down by almost 2.5%, Hong Kong’s Hang Seng by 3.7% and Australian shares by almost 10%. On Wall Street, futures for the benchmark S&P 500 Index fell 5%, triggering a halt in trading as trading systems struggled to match buy and sell orders.
The Reserve Bank of New Zealand also stepped in, lowering its rate by 75 basis points to 0.25% at an emergency meeting. The Bank of Japan brought forward its 18-19 March meeting and kept borrowing costs unchanged but pumped more money into markets, by doubling purchases of exchange-traded funds from to 6 to 12 trillion yen and other measures. “As the last few weeks have unfolded there has been a growing fear that the world faces a perfect storm,” said Paul Markham, global equities portfolio manager at the asset manager Newton Investment Management. “A strong nerve will be required and it may well get darker before we see the light.”
Data from China showed industrial production declined 13.5%, fixed asset investment tanked 24.5% and retail sales fell 20.5% in February, as the coronavirus outbreak brought the country to a standstill. After the second emergency rate cut by the Fed, economists warned there was little central banks could do to prevent a global recession as efforts to contain the virus disrupted company supply chains and dragged down consumer demand.
The pandemic is taking a mounting toll on businesses, with a number of warnings from companies on Monday. The owner of British Airways, IAG, and easyJet, Europe’s number three and number four airlines, said they would cut capacity drastically to try to survive the coronavirus outbreak, which has stopped people travelling around the world. With interest rates still close to the lowest levels on record following the financial crisis a decade ago, there are concerns central banks have limited ammunition left to provide further support, as the economic downturn intensifies amid fears the Covid-19 outbreak could last until spring 2021.
IAG said it would cut its flying capacity by at least 75% in April and May, and its outgoing boss, Willie Walsh, is deferring his retirement. The Fed slashed rates to 0-0.25%, the lowest rate in its history, and said it would buy $700bn (£560bn) in government bonds as it attempts to head off a severe slowdown. In coordinated action between major central banks around the world, the Reserve Bank of New Zealand and Bank of Japan also stepped in with emergency measures, while the Bank of England was among six global central banks to unleash combined efforts to smooth volatile trading on financial markets.
IAG has already suspended flights to China and cancelled all flights to and from Italy. To cut costs, it will ground surplus aircraft, freeze recruitment and reduce working hours. Neil Shearing, group chief economist at the consultancy Capital Economics, said governments and central banks could do little to stop a recession, but could prevent it from turning into a repeat of the 2008 financial crisis or the economic depression of the 1930s.
Walsh said: “We have seen a substantial decline in bookings across our airlines and global network over the past few weeks and we expect demand to remain weak until well into the summer. We are therefore making significant reductions to our flying schedules.” “Things are getting ugly,” he said, adding: “History suggests that equity markets are only likely to bottom out when it becomes clear that the flow of new cases of the virus has peaked. Until this happens, we should expect stock markets to remain under pressure.”
UK airline bosses are calling on the government to step in with an immediate multibillion-pound emergency bailout. Data from China showed industrial production declined by 13.5%, with investment levels in the Chinese economy tanking by a quarter and retail sales falling by a fifth in February, as the coronavirus outbreak brought the country to a standstill.
The gambling company Flutter, which owns Paddy Power and Betfair, issued a profit warning after sports events around the world were cancelled or postponed in recent days. The pandemic is taking a mounting toll on businesses, with a number of warnings from companies on Monday. Airlines and travel companies led the fallers on the blue-chip FTSE 100 index, with holiday travel company Tui collapsing in value by 38%. Over the weekend Tui announced it was temporarily suspending the “vast majority of all travel operations until further notice”.
Ryanair, Europe’s largest short-haul airline, cancelled 80% of its flights until May and said it had not ruled out a “full grounding of the fleet” in the wake of the coronavirus crisis. The owner of British Airways, IAG, and easyJet, Europe’s number three and number four airlines respectively, also said they would cut capacity drastically.
UK retailers and Kingfisher warned the coronavirus pandemic will hit sales following store closures in Europe, while betting company Flutter issued a profit warning.