Irish banking stocks, betting giant Flutter Entertainment and Ryanair led Irish shares sharply lower on Monday as European markets tumbled more than 8 per cent as the coronavirus pandemic raged through much of Europe.
Dramatic monetary easing by global central banks - including the US Federal Reserve’s emergency move on Sunday to cut its rates close to zero - failed to reassure investors about its growing economic damage. The Iseq plummeted 11.3 per cent by 9am. It staged a late rally however to close down 7.9 per cent at 4740.39.
The SandP 500 fell 11 per cent as of 9.51am in New York, wiping out all of the gains during 2019’s rally and bringing into play the 13 per cent circuit breaker that would pause trading for 15 minutes.
The index plunged 8 per cent at the open and trading halted for 15 minutes.
Hyper-turbulent financial markets started the week back in risk-off mode, with investors trying to assess the likely extent of the economic damage after countries around the world moved to combat the virus spread by virtually shutting down social activity.
“The market’s in panic mode,” Chris Rupkey, chief financial economist for MUFG Union Bank, said in a phone interview.
“The move overnight was a shock and the market isn’t taking it as the Fed officials riding to the rescue. They’re taking it as ‘get out of the way, look out below, this could be really, really bad’.”
The Fed and other central banks have dramatically stepped up efforts to stabilise capital markets and liquidity, yet the moves have so far failed to boost sentiment or improve the rapidly deteriorating global economic outlook.
An International Monetary Fund pledge to mobilise its $1 trillion lending capacity also had little impact in markets.
The yen rebounded from Friday’s plunge after the Fed and five counterparts said they would deploy foreign-exchange swap lines. Australian equities fell almost 10 per cent, the most since 1992, even after the Reserve Bank of Australia said it stood ready to buy bonds for the first time – an announcement that sent yields tumbling. New Zealand’s currency slumped after an emergency rate cut by the country’s central bank.
Meanwhile, China reported Monday that output and retail sales tumbled in the past two months.
The move by central banks “merely seems to have underlined the potential hit to economic activity from coronavirus as investors grapple with data showing the extent of impact on China’s economy,” said Davy economist Conall MacCoille.
New data out on Monday showed that retail sales slumped 20 per cent and industrial production plunged 13.5 per cent in the first two months of the year in the county that was ground zero for Covid-19.
Bank of Ireland slumped 18 per cent to €1.93 at 9am, while AIB slid 13.6 per cent to €1.25, as investors fretted about an inevitable spike in bad loans as households and companies are hit by an economic slump caused by the spread of Covid-19.Both staged late rallies with Bank of Ireland closing 9.4 per cent lower and AIB down 11.9 per cent .
Flutter Entertainment, the parent group of Paddy Power bookmakers, spiralled 21.5 per cent lower in early trading after it issued a profit warning as sporting fixtures have been cancelled globally, It ended the day down 12.9 per cent.
Ryanair was another stock to stage a late rally, closing 11 per cent lower after trading down 23 per cent earlier in the day.
Equities in France and Spain led losses across Europe as the two countries joined Italy in enforcing a national lockdown.
Airlines and holiday operators including TUI, EasyJet, British-Airways owner IAG and Air France - KLM were among the biggest decliners on the Stoxx 600 as the pandemic brought global travel to a standstill.
The wider travel and leisure index plunged more than 12 per cent. Europe’s fear gauge jumped to a record high of 87.90.
“The issue for investors is that the virus’ economic impact is still not known - if this is a one-month event or a one-year event, and how deep the cutback in consumer spending is going to be,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.
Central banks in Japan, Australia and New Zealand followed with their own measures, but could not stem a slide in global stocks. S&P 500 futures fell 4.77 per cent to their daily down limit shortly after resuming trading on Sunday night.
The drastic manoeuvres were aimed at cushioning the economic impact as the breakneck spread of the coronavirus all but shut down more countries, though they had only limited success in calming panicky investors.
MSCI’s index of Asia-Pacific shares outside Japan tumbled 4 per cent to lows not seen since early 2017, while the Nikkei fell 2 per cent as the Bank of Japan’s easing steps failed to stabilise market confidence.
The benchmark European index has now lost more than a third of its value since hitting a record high mid-February, with declines made worse by a crash in oil prices and the European Central Bank’s decision to hold interest rates last week.
Latest economic data from China showing factory production plunging at its sharpest pace in 30 years has also re-ignited fears of a global recession as the pandemic paralyses supply chains and crushes business sentiment.
Europe’s banks index fell about 9.9 per cent, with French banks Natixis and SocGen giving up between 14.1 per cent and 12.6 per cent.
“By any historical standard, the scale and scope of these actions was extraordinary,” said Nathan Sheets, chief economist at PGIM Fixed Income, who helps manage $1.3 trillion in assets. “This is dramatic action and truly does represent a bazooka.”
“Even so, markets were expecting extraordinary action, so it remains to be seen whether the announcement will meaningfully shift market sentiment.”
He emphasised investors wanted to see a lot more US fiscal stimulus put to work and evidence the Trump administration was responding vigorously and effectively to the public health challenges posed by the crisis.
“The performance of the economy and the markets will be mainly determined by the severity and duration of the virus’ outbreak.”
Shanghai blue chips fell 3 per cent even as China’s central bank surprised with a fresh round of liquidity injections into the financial system. Hong Kong’s Hang Seng index tumbled 3.4 per cent.
Australia’s S&P/ASX 200 plunged, finishing down 9.7 per cent for its steepest fall since the 1987 crash.
Markets have been severely strained as bankers, companies and individual investors stampeded into cash and safe-haven assets, while selling profitable positions to raise money to cover losses in savaged equities.
Such is the dislocation the Fed cut interest rates by 100 basis points on Sunday to a target range of 0 per cent to 0.25 per cent, and promised to expand its balance sheet by at least $700 billion in coming weeks.
Five of its peers also joined up to offer cheap US dollar funding for financial institutions facing stress in credit markets.
US president Donald Trump, who has been haranguing the Fed to ease policy, called the move “terrific” and “very good news”.
“It may be a shot in the arm for risk assets and help to address liquidity concerns...however, it also raises the question of whether the Fed has anything left in the tank should the spread of the virus not be contained,” said Kerry Craig, global market Strategist at JP Morgan Asset Management.
“We really need to see the fiscal side...to prevent a longer than needed economic slowdown.” – Additional reporting: Reuters
