The threat of a global recession triggered by the coronavirus pandemic is still looming large in the minds of investors and markets around the world despite a number of emergency stimulus measures being announced in a bid to steady the ship.
Yesterday (Thursday) the new Bank of England governor, Andrew Bailey announced that rates would be cut to a low of 0.1% (not seen since the Bank of England was formed in the 1960s) and that a round of quantitative easing would take place. He ordered the money presses to print an extra £200bn currency for bond purchases to support economic activity amidst multiple warnings from sectors including aviation, transport and hospitality that mass bankruptcies could be on the way.
Funding for small businesses and help for homeowners, renters and those laid off as a result of the coronavirus shut down have also been announced. The Bank of England says more could be to come with “nothing off the table” but the pound has fallen to record lows against the US dollar.
The European Central Bank also pledged £708bn in new bond purchases for additional liquidity on Thursday as markets watched stocks slump into the red around the world. For its part, the US Federal Reserve has also stepped in, creating nine swap lines with the same number of countries for reserve currency.
The moves seem to have had a somewhat positive effect on investor confidence, with Wall Street closing slightly up on Thursday after trading at the lowest levels in a decade – the Dow Jones Indexed finished the day 1% up after starting 3% down – this following Wednesday’s trading which saw a 10% loss at one point in the day. Markets in Germany and Paris also rebounded a little but the European stock market, STOXX 600 index has lost a third of its value during the outbreak.
Dutch multinational bank ING’s developed market economist, James Smith said a recession could be inevitable, remarking “Ultimately none of this will, unfortunately, stop a UK recession, which like most of the developed world, now looks inevitable… the hope is that many of these measures can help limit the increase in unemployment, and foster a swifter and smoother recovery when the virus-shutdowns have passed.”
CM Markets London analyst David Madden thinks more is to come, adding “The stimulus package didn’t provide much cheer as there is still a perception the health will get worse before it gets better – traders are mindful that we have yet to see the peak of the crisis.”
Of course, in times of crisis gold is a safe store of value with high levels of liquidity and low levels of market turmoil. In these uncertain times, its appeal is greater than ever.