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Are governments and central banks doing 'whatever it takes' to counter the effects of COVID-19?

19 March 2020

In response to the financial markets all time low, how are countries reacting to the economic crisis caused by the global spread of the Coronavirus.

Events around the world are moving rapidly and markets making very big intraday moves. Yesterday, European government yields had risen steeply with Italian ten-year bonds peaking close to 3%. At the start of the Coronavirus crisis, these bonds yielded just below 1%. Overnight, the European Central Bank (ECB) acted decisively by announcing a €750 billion pandemic bond purchase program, which will now include Greece under a waiver. These purchases are to be conducted until the end of 2020, suggesting on average they will be conducting additional asset purchases of 80bn EUR a month. This appears to be on top of the existing 20bn EUR a month and the 120bn EUR announced at its meeting last week. Italian yields fell back to 1.9% for ten years whilst Greek bonds fell from over 4% to 2.4%.

In addition to the ECB action, overnight, we have seen a considerable response to the situation globally. The Federal Reserve (Fed) has provided support for money market funds. The Bank of Japan increased Japanese Government Bond purchases and offered further liquidity to the market. South Korea pledged more money for smaller companies. Australia cut rates and announced a term funding scheme to boost their economy. Therefore, further government and central bank action is being pledged to counter the effects of the Coronavirus. 

On the positive side, China has reported no new domestic cases of Coronavirus for the first time, and is now only getting cases from people returning from abroad. 

Equity markets remained fluid with further wild swings overnight. Markets initially reacted positively on the ECB action with equity futures higher, but, as I write, they are slightly negative again. The central bank action has been incredibly responsive; however, we need to see more support for corporates and fiscal action from governments. Whilst some countries in Continental Europe and the UK have taken action to help companies and individuals get through this, the US action so far has been limited and slow.  US politicians still seem intent on diluting some of the measures proposed.  

As economic activity shuts down globally, in an attempt to counter the spread of COVID-19, individuals and companies will struggle to meet their cash flow needs. This has led to a broad sell-off in a wide range of assets including equities, corporate and government bonds, and commodities. 

Open-ended property funds have once again closed to redemptions because of a lack of clarity in pricing as much as outflows. For now, cash is king, but the indiscriminate sell off, particularly by index trackers will throw up opportunities for investors with long-term views, and we are looking at these whilst keeping a close eye on short-term developments. Companies with strong balance sheets may be better positioned to come through, and with interest rates expected to remain low for an extended period of time it is likely they will look more attractive.  

This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. The subject of the communication is not a regulated investment. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Vestra LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Vestra LLP, employees and associated companies for any direct or consequential loss arising from this document.

LGT Vestra LLP is authorised and regulated by the Financial Conduct Authority (FCA).

 

 

In response to the financial markets all time low, how are countries reacting to the economic crisis caused by the global spread of the Coronavirus.

Events around the world are moving rapidly and markets making very big intraday moves. Yesterday, European government yields had risen steeply with Italian ten-year bonds peaking close to 3%. At the start of the Coronavirus crisis, these bonds yielded just below 1%. Overnight, the European Central Bank (ECB) acted decisively by announcing a €750 billion pandemic bond purchase program, which will now include Greece under a waiver. These purchases are to be conducted until the end of 2020, suggesting on average they will be conducting additional asset purchases of 80bn EUR a month. This appears to be on top of the existing 20bn EUR a month and the 120bn EUR announced at its meeting last week. Italian yields fell back to 1.9% for ten years whilst Greek bonds fell from over 4% to 2.4%.

In addition to the ECB action, overnight, we have seen a considerable response to the situation globally. The Federal Reserve (Fed) has provided support for money market funds. The Bank of Japan increased Japanese Government Bond purchases and offered further liquidity to the market. South Korea pledged more money for smaller companies. Australia cut rates and announced a term funding scheme to boost their economy. Therefore, further government and central bank action is being pledged to counter the effects of the Coronavirus. 

On the positive side, China has reported no new domestic cases of Coronavirus for the first time, and is now only getting cases from people returning from abroad. 

Equity markets remained fluid with further wild swings overnight. Markets initially reacted positively on the ECB action with equity futures higher, but, as I write, they are slightly negative again. The central bank action has been incredibley responsive; however, we need to see more support for corporates and fiscal action from governments. Whilst some countries in Continental Europe and the UK have taken action to help companies and individuals get through this, the US action so far has been limited and slow.  US politicians still seem intent on diluting some of the measures proposed.  

As economic activity shuts down globally, in an attempt to counter the spread of COVID-19, individuals and companies will struggle to meet their cash flow needs. This has led to a broad sell-off in a wide range of assets including equities, corporate and government bonds, and commodities. 

Open-ended property funds have once again closed to redemptions because of a lack of clarity in pricing as much as outflows. For now, cash is king, but the indiscriminate sell off, particularly by index trackers will throw up opportunities for investors with long-term views, and we are looking at these whilst keeping a close eye on short-term developments. Companies with strong balance sheets may be better positioned to come through, and with interest rates expected to remain low for an extended period of time it is likely they will look more attractive.  

This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. The subject of the communication is not a regulated investment. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Vestra LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Vestra LLP, employees and associated companies for any direct or consequential loss arising from this document.

LGT Vestra LLP is authorised and regulated by the Financial Conduct Authority (FCA).