Market Spice: The Disease and the Cure

Market Spice: Week of 16 March 2020 

Governments moved globally to combat the spread of the coronavirus, and to mitigate the effects of these measures on their economies. Uncertainty about the duration of the outbreak, and the policies halting social and economic activity used to combat it, produced a painful week for markets. Goldman Sachs forecast a 24% decrease in U.S. second-quarter growth, and Bank of America determined that a recession was already occurring. Studies on the anti-malarial drugs chloroquine and hydroxychloroquine showed promise in alleviating symptoms of coronavirus.  

Image Source: Reuters/Aly Song


  • China and South Korea both reported reductions in their coronavirus case load. 
  • In China, the CSI 300 dropped 6.2% over the course of the week. 
  • Retail sales in China fell 20.5% in February, and investment banks predicted a sharp fall in China’s first-quarter GDP.  Businesses have been attempting a sluggish recovery.
  • Japanese Prime Minister Shinzo Abe formed a coronavirus advisory panel to shape the forthcoming stimulus package. Reuters reported that Japanese businesses had seen severe losses due to the pandemic in February. The government is considering suspending the sales tax, among other measures. 
  • The Bank of Korea  announced a series of interventions, but the KOSPI still fell over 11% over the week. 
Image SourceL REUTERS/Hannah McKay


  • European equities experienced an uptick on Thursday and Friday with government measures to help businesses and individuals hit by coronavirus containment measures. The STOXX Europe 600 fell 1.85% over the course of the week, the DAX 3.56%, and the FTSE 100 2.78%. 
  • On Thursday, the European Central Bank and the Bank of England began a multi-hundred billion euro asset purchasing program. Its €750 billion Pandemic Emergency Program will deal with both corporate and sovereign bonds. 
  • With stricter restrictions on business and social movement in the U.K., the Bank of England announced a corporate financing facility for businesses for companies comprising 15% of the national income, loosened regulations on lenders, and other measures.  
  • Spanish Prime Minister Pedro Sanchez announced €200 billion of stimulus and a government takeover of private health care. 
  • On Monday, France guaranteed loans of $335 billion to businesses. 
Image Source: REUTERS/Lucas Jackson

North America 

  • Multiple U.S. states announced restrictions on social movement and the closure of non-essential businesses. The market erased nearly all its gains of the past three years, with the Dow falling to pre-2017 levels. Hospitality, airline, and energy equities suffered the worst losses. 
  • The U.S. Federal Reserve announced that it would lend support to commercial paper markets, short-term loans corporations use to fund their operations. It also extended swap lines to more countries. 
  • The U.S. government worked out the details of a stimulus plan totalling over $1 trillion. 
  • U.S. jobless claims rose; Goldman Sachs estimated a rise of 2.25 million jobless claims.  The three largest automakers in the U.S. temporarily closed their factories. 
  • Canadian Prime Minister Justin Trudeau presented a stimulus package of $56.7 billion, 3% of the country’s GDP,  and the Bank of Canada reduced its policy rate to 0.75%. 
  • Yields on short and medium-term U.S. Treasuries decreased, while yields on longer-term Treasuries increased. 

Other Markets

  • Australia’s central bank cut interest rates to 0.25% and put in place a bond-buying program. 
  • Emerging market bonds suffered deeply, reaching distressed asset levels as measured by their credit spreads. Poorer countries faced uncertainty over whether the World Bank’s pandemic bonds would pay out, with the determination set to come in April. 

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

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