As the spread of coronavirus gathered pace across the world during February, investors became increasingly concerned that the economic impact could trigger a global recession. Share prices plunged over February as a whole.
- Many major equity markets tumbled
- Gold rose to its highest level for seven years
- Government bond yields fell heavily
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As the spread of coronavirus gathered pace across the world during February, investors became increasingly concerned that the economic impact could trigger a global recession.
“Central banks are coming under pressure to respond to the impact of the virus via monetary policy”
The World Health Organisation, (WHO) reported 85,403 confirmed cases of coronavirus worldwide as at 29 February, with 2,924 deaths recorded. In the UK, 23 cases had been diagnosed by the end of the month. Share prices plunged: over February as a whole, the FTSE 100 Index fell by 9.7%, while the Dow Jones Industrial Average Index dropped by 10.1%. In Europe, the Dax Index fell by 8.4% and the CAC 40 Index declined by 8.5%, while in Japan, the Nikkei 225 Index and the Topix Index fell by 8.9% and 10.3% respectively.
According to Standard & Poor’s (S&P), sectors that are likely to prove especially vulnerable to the impact of the virus include those with heavy exposure to discretionary consumer spending – for example, leisure and travel – and those that rely on Chinese supply chains and demand, such as technology and automotive. During the month, many companies warned that the virus will have an adverse effect on revenues or earnings, although the impact at this stage remains hard to quantify. They included transport and travel companies such as British Airways parent company IAG and easyJet, technology companies including Apple and Microsoft, and drinks manufacturers AB InBev and Diageo.
Although central banks are coming under pressure to respond to the impact of the virus via monetary policy, many have limited scope to take action. US Federal Reserve (Fed) Chair Jerome Powell acknowledged that the coronavirus “poses evolving risks to economic activity” and pledged to “use our tools and act as appropriate”, fuelling speculation that the Fed will cut its key federal funds rate in March. Elsewhere, China’s authorities have already implemented a series of measures designed to shore up its economy.
Government bond yields tumbled as investors headed for perceived “safe-haven” investments. During the month, the yield on the benchmark US Treasury bond fell to a record low, dropping below 1.2%, while the benchmark UK gilt yield declined to its lowest level for four months. Meanwhile, the price of gold rose to its highest level for seven years. In comparison, Brent Crude oil fell below US$50 per barrel – its lowest price since 2017 – amid speculation that demand will drop sharply.
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