After last week’s market rally, economic reality sinks in

Share markets in Asia and Europe, and oil prices resume falls after latest warnings of virus’s spread.

Frankfurt stock exchange
European share markets followed Asian stocks lower on Monday as investors focused on the latest reports of the spreading coronavirus [March 27, 2020: Staff/Reuters]

Kuala Lumpur, Malaysia – Stocks in Asia and Europe, and global energy prices, dropped sharply on Monday as investor enthusiasm over extensive government and central bank stimulus packages gave way to fresh concerns over the global economy while coronavirus infections climbed.

Investors said they are concerned over the long-term economic effects of measures to prevent people from coming into close contact with each other. 

“With the desperate [virus containment] measures taken, it’s very unlikely that we’ll go back to what it was before once this is all over. I know the market bounced before the economy does, but I think investors have yet to price in the full economic impact,” Gerald Ambrose, chief executive officer of Aberdeen Standard Islamic Investments in Malaysia, told Al Jazeera.

After posting a 17 percent surge last week, Japan’s Nikkei 225 index fell 1.57 percent. Among Asia’s other large share markets, China’s Shanghai Composite Index dropped 0.9 percent, Hong Kong’s Hang Seng Index shed 1.32 percent, while South Korea’s Kospi Index was little changed with a 0.04 percent decline. 

Singapore’s Straits Times Index tumbled 4.45 percent, leading losses in Asia, despite its central bank’s attempt to give the economy a boost by guiding the value of its currency lower. Shares next door in Malaysia fell 1.1 percent.

In Europe, Germany’s Xetra DAX index was down 1.8 percent, while UK stocks were down 2.7 percent, and in Paris, the CAC 40 was 3 percent lower in early trade.

Policy reversal

On Sunday, United States President Donald Trump said his administration would extend social distancing guidelines until April 30, reversing his call last week for the US economy to return to normal by Easter in mid-April. 

Also over the weekend, Trump’s top infectious diseases expert, Anthony Fauci, said the coronavirus pandemic could cause between 100,000 and 200,000 deaths in the US.

The US has 139,000 confirmed infections from the coronavirus, more than any other country, while more than 2,400 people have died from the respiratory illness caused by the pathogen.

Trump signed a $2 trillion government stimulus package into law last week, as governments in Europe and across Asia rolled out huge spending plans to protect workers and businesses from bearing the brunt of the virus containment measures.

“The stimulus will of course help to cushion the impact of COVID-19-induced slowdown on the economy, but the fear level is still very high. When fear subsides, perhaps the impact of the stimulus will become more apparent,” Choo Swee Kee, chief investment officer at TA Investment Management, told Al Jazeera.

Still, those efforts will not reverse the rapid deterioration in the real economy as the world comes to a near standstill, a situation some countries are saying may last for much of this year, analysts said.

Oil prices slump again

Economists are increasingly convinced that the world will enter a recession this year, which typically means the economy will shrink for at least two consecutive quarters.   

Oil prices fell, plunging to their lowest levels in 17 years at one point on Monday as hopes of a truce between Saudi Arabia and Russia vanished amid a price war between tthe top producers. The resulting increase in oil supply has coincided with a collapse in demand as global economic growth slows, keeping prices depressed. 

Brent crude slumped 8.9 percent to $22.70 per barrel on Monday, while US West Texas Intermediate fell 5.8 percent to $20.26 per barrel.

Saudi Arabia said on Friday it was not in discussion with Russia to stabilise crude prices despite rising pressure from the US.

Source: Al Jazeera