This week a lot has happened in the global financial markets and the global stock markets have crashed significantly within a few days and the question that most people are asking is whether this drop will culminate in a global stock market crash. The Federal Reserve has been targeting the stock market as a way of boosting economic growth. They have been pumping billions of dollars into the stock market for many years and now, the prices are inflated. The current global panic as a result of the outbreak has triggered stock selling and this is what is causing the stocks prices to tumble every single day and in the process wealth worth billions of dollars is being lost.
In the past week, many global companies are reporting that the global supply chains are being affected by this global panic and the earnings are shrinking because of decreased consumer consumption. Asian markets have experienced a lot of equity selling and the Japanese Nikkei is down over 3 percent. Similar situation is happening in China and the Chinese stock market is also down as investors fear that the situation can get worse in the next few weeks. At the same time, the US futures have been rising in value as they are now cheaper to buy. The government has been pumping money to keep everything intact even if the real economy and the supply chains are have been slowed down by the ongoing fear. However, no one cares anyway; “please hold the panic” says the Wall Street journal. Yesterday the United States treasury secretary gladly overstepped his boundaries to say that the central bank will of course cut down the short term interest rates if the impact of the outbreak grows.
On the other side, much has also been happening in the global bond yields. The 10 years US Treasuries hit a low of 1.36 percent although we are now a little higher at 1.39 [percent along with the equity futures. The market is now expecting the Federal Reserve to cut interest rates later in the year. In the meantime, we just have around $40 billion in new Federal Reserve repo madness to tide up in the next few days.
In China, the stock market has also been hit hard by the epidemic and this has caused the beginning of this stock market crash. The Shanghai composite (SHCOMP) has lost more than 5.6 percent of its value in this week and this has been the worst performance by the index since April 2019. Various benchmark indexes in South Korea and Australia have also lost a significant percentage of their value. The European stock market too has suffered and the Germany index (DAX) has dropped by nearly 5 percent. When this is put into perspective, the global financial markets had their worse week since the global financial crisis. The MSCI index which tracks the share of some of the largest companies in the world has already lost 8.9 percentage decline of its value; this turns out to be the worst percentage drop since the market crash of 2008.
Major investors have been spooked by increase in the number of warnings from various global companies like Apple, Disney, Microsoft, IAG and others whose businesses have been hit by the outbreak. The outbreak has reduced the demands of various goods and services and at the same time the global supply systems are facing some disruptions. Major firms are reporting a reduction in business activities. It is very clear that the panic caused by this outbreak is really crushing businesses and financial markets and leads to a major stock market crash all around the world.
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