Global financial markets clawed back a small slice of their losses on Friday after a brutal week of selling – the worst since the Black Monday crash of 1987 – on the back of a spike in coronavirus cases outside China.
European stock markets, including Dublin’s Iseq, snapped a six-day losing streak as central banks and governments promised more stimulus measures to thwart a global recession.
The rally, however, lost steam by late afternoon and many of the gains were pared back with investors fearing that the massive lockdown protocols being implemented across Europe and the US would result in business closures, particularly in the worst-hit travel, transport and leisure sectors.
The nervy atmosphere was compounded after Spain declared a state of emergency over the outbreak, with the United States following suit. The S&P was ahead by 6 per cent as US president Donald Trump made a statement on the matter.
“Whatever we made up in the morning, we just gave it all back, with people de-risking ahead of the weekend,” Davy analyst Geoff McAvoy said, after the Iseq index of Irish shares closed 0.5 per cent up at 5,148.
He said there was no real buying behind the early rally, it was more of "a sellers' strike" driven by German and European Central Bank (ECB) moves to provide more stimulus.
“You can throw as much money at this as you want but it’s still not solving the problem. The market is looking for a cure to the coronavirus,” he said.
Europe’s benchmark Stoxx 600 index closed up 1 per cent, following a record 11.5 per cent crash on Thursday. The index was down 18 per cent for the week, its worst weekly drop since the 2008 financial crisis.
Restrictions
"These measures that governments are putting into place are just restrictions to movement – these are necessary measures, but nevertheless, they will have a significant economic impact, which the market is still coming to terms with," said Andrea Cicione, head of strategy at TS Lombard in London. The Stoxx 600, which sank into bear territory this week, has lost nearly a third of its value from a peak hit in mid-February.
Germany said it was pledging unlimited cash to businesses hit by the coronavirus, in what finance minister Olaf Scholz described as a big "bazooka" to avert a crisis in the euro zone's largest economy.
The move represents an abrupt volte-face for a government that for years has been wedded to the ideology of balanced budgets and no new borrowing, and has long resisted calls from international organisations such as the IMF to loosen the purse strings.
But it also reflects the enormity of the challenge coronavirus poses for an export-oriented economy like Germany’s that is so heavily reliant on global supply chains and the free flow of trade.
The EU, meanwhile, said it will boost spending on coronavirus-hit sectors of the economy while also clearing member nations to run bigger deficits . The European Commission, which predicted the outbreak would cause the bloc's economy to shrink this year, said existing EU funds – but no new money – would be redirected to companies in greatest need, backed by a lenient interpretation of budget and state aid rules. – Additional reporting: Reuters, Bloomberg
