Donald Trump’s announcements strike a blow to the markets. The American president has decided to close his country’s borders to travelers from Europe in order to limit the spread of the epidemic to his fellow citizens.
But for the moment, after the fall of the financial centers of Asia-Pacific, this decision has mainly caused oil prices to plunge (-6% this Thursday morning) as well as the European stock markets, also paralyzed by the passage of coronavirus from stage of epidemic to that of pandemic, which suggests that the health crisis will permanently plague the world economy.
Result, the CAC 40 sinks deep into the red, losing more than 6%, close to the floor of 4,300 points. In the first exchanges, half of the components of the index had not opened immediately, notes the Reuters agency. The plunge is also brutal for London, which sees its index lose nearly 6%, while the Frankfurt Stock Exchange also drops 6% and falls below the symbolic threshold of 10,000 points. The shock is such that the STOXX 600, the European benchmark, fell by more than 7% on Thursday, dropping it to the lowest level since the Brexit vote in 2016.
The US credit market worries
Wednesday evening, the announcement of the WHO as well as the lack of concrete measures to support the American economy in the speech of Donald Trump made Wall Street unscrew by more than 5%. Investors continue to shed their stocks in droves as this financial crisis ends the longest bull market in history.
According to strategist Stéphane Déo of La Banque Postale Asset Management, we must now pay attention to the credit market in the United States: “Implied volatility on the credit market in the United States, a measure of market fear, has completely exploded. We are at the highest historic! The risk being that if companies no longer manage to finance themselves, the crisis could worsen sharply, adds the economist.
What will the ECB do?
All eyes are now on the European Central Bank, which in turn must present a battery of measures to try to prevent the economic system of the euro area from entering into recession. But its room for maneuver is slim and it reacts after a number of central banks, whose announcements have had no noticeable effect on the markets.
The Fed’s 50 basis point cut on March 3 was no more reassuring than the drop announced by the Bank of England on Wednesday, or that of the Bank of Canada or the Bank of Australia. “Christine Lagarde and the European central bankers will have to strike very hard, notes Tangi Le Liboux, at Aurel BCG. Otherwise, the disappointment of investors could cause another stock market collapse. This Thursday, March 12, is the real baptism of fire for the ex-president of the IMF. “
In the meantime, the VIX, nicknamed “the index of fear”, continues to fly. For the first time since the start of the crisis, it jumped above 62 points on Wednesday. For analysts, this situation could continue to plunge share prices lower. “Watch out for false starts,” says Franck Dixmier, director of bond management at Allianz Global Investor, for investors who might be tempted.
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