Financial market reaction to the COVID-19 pandemic
On 20 February 2020, stock markets across the world suddenly crashed after growing instability due to the COVID-19 pandemic. It ended on 7 April 2020.
Beginning on 13 May 2019, the yield curve on U.S. Treasury securities inverted, and remained so until 11 October 2019, when it reverted to normal. Through 2019, while some economists (including Campbell Harvey and former New York Federal Reserve economist Arturo Estrella), argued that a recession in the following year was likely, other economists (including the managing director of Wells Fargo Securities Michael Schumacher and San Francisco Federal Reserve President Mary C. Daly) argued that inverted yield curves may no longer be a reliable recession predictor. The yield curve on U.S. Treasuries would not invert again until 30 January 2020 when the World Health Organization declared the COVID-19 outbreak to be a Public Health Emergency of International Concern, four weeks after local health commission officials in Wuhan, China announced the first 27 COVID-19 cases as a viral pneumonia strain outbreak on 1 January.
The curve did not return to normal until 3 March when the Federal Open Market Committee (FOMC) lowered the federal funds rate target by 50 basis points. In noting decisions by the FOMC to cut the federal funds rate by 25 basis points three times between 31 July and 30 October 2019, on 25 February 2020, former U.S. Under Secretary of the Treasury for International Affairs Nathan Sheets suggested that the attention of the Federal Reserve to the inversion of the yield curve in the U.S. Treasuries market when setting monetary policy may be having the perverse effect of making inverted yield curves less predictive of recessions.
During 2019, the IMF reported that the world economy was going through a 'synchronized slowdown', which entered into its slowest pace since the Great Recession. Weakness was exhibited in the consumer market as global markets began to suffer through a 'sharp deterioration' of manufacturing activity. Global growth was believed to have peaked in 2017, when the world's total industrial sector output began to start a sustained decline in early 2018. The IMF blamed 'heightened trade and geopolitical tensions' as the main reason for the slowdown, citing Brexit and the China – United States trade war as primary reasons for slowdown in 2019, while other economists blamed liquidity issues.
The crash caused a short-lived bear market, and in April 2020 global stock markets re-entered a bull market, though U.S. market indices did not return to January 2020 levels until November 2020. The crash signaled the beginning of the COVID-19 recession. The 2020 stock market crash followed a decade of economic prosperity and sustained global growth after recovery from the Great Recession. Global unemployment was at its lowest in history, while quality of life was generally improving across the world. However, in 2020, the COVID-19 pandemic, the most impactful pandemic since the Spanish flu, began decimating the economy. Global economic shutdowns occurred due to the pandemic, and panic buying, and supply disruptions exacerbated the market. The International Monetary Fund had pointed to other mitigating factors seen before the pandemic, such as a global synchronized slowdown in 2019, as exacerbants to the crash, especially given that the market was already vulnerable.
Crash.
Though the crash began on 20 February, selling was intensified during the first half of March to mid-March. During the crash, there were multiple severe daily drops in the global stock market, the largest drop was on 16 March, nicknamed 'Black Monday II' of 12–13% in most global markets. There were two other significant dates of crashes in the stock markets, one being 9 March, nicknamed 'Black Monday I', and on 12 March, nicknamed 'Black Thursday'. To deal with the panic, banks and reserves across the world cut their interest rates, bank rates and cash flow rates, as well as offering unprecedented support to investors and markets.
17–21 February.
On Monday, 17 February 2020, Asia-Pacific stock markets closed down but European stock markets closed up, while U.S. stock markets were closed in observance of Presidents Day. Oil prices fell, while the yield on 10-year U.S. Treasury securities fell to 1.59%. On 18 February, Asia-Pacific stock markets closed up, while European stock markets, the Dow Jones Industrial Average, NASDAQ Composite, and S&amp;P 500 all closed down. Oil prices rose by more than 2%, while the yields on 10-year and 30-year U.S. Treasury securities fell to 1.54% and 1.99%. Singaporean Finance Minister Heng Swee Keat announced a $4.5 billion fiscal stimulus program. On 19 February, Asia-Pacific and European stock markets closed mostly up, while the Dow Jones Industrial Average finished up and the NASDAQ Composite and the S&amp;P 500 finished at record highs. Oil prices rose by another 2%, while yields on 10-year and 30-year U.S. Treasury securities fell to 1.56% and 2.00% respectively. The People's Bank of China and the Central Bank of the Republic of Turkey cut their repo rates by 10 and 50 basis points respectively, while the Central Bank of Argentina cut its bank rate by 400 basis points.
On 20 February, stock markets worldwide closed mostly down, while oil prices fell by 1% and yields on 10-year and 30-year U.S. Treasury securities fell to 1.51% and 1.96% respectively. Bank Indonesia cut its overnight rate by 25 basis points, while the Central Bank of Brazil announced it would cut its reserve requirement on 16 March from 31% to 25%, which is expected to release R$135 billion (or $29 billion) into the money supply. On 21 February, stock markets worldwide closed down on the day (with the Dow Jones Industrial Average, the NASDAQ Composite, and S&amp;P 500 closing down on the week), while oil prices fell and yields on 10-year and 30-year U.S. Treasury securities fell to 1.45% and 1.89% respectively (with the 30-year finish being an all-time low).
24–28 February.
On Monday, 24 February 2020, the Dow Jones Industrial Average and FTSE 100 dropped more than 3% as the coronavirus outbreak spread worsened substantially outside China over the weekend. This follows benchmark indices falling sharply in continental Europe after steep declines across Asia. The DAX, CAC 40 and IBEX 35 each fell by about 4% and the FTSE MIB fell over 5%. There was a large fall in the price of oil and a large increase in the price of gold, to a 7-year high. Yields on 10-year and 30-year U.S. Treasury securities fell to 1.36% and 1.81% respectively. On 25 February, stock markets worldwide closed down, while oil prices fell to their lowest level in more than a year and the yields on 10-year and 30-year U.S. Treasury securities fell to new record lows of 1.31% and 1.80% respectively. Indonesian Finance Minister Sri Mulyani announced a $742 million fiscal stimulus program.
On 26 February, stock markets worldwide finish with mixed records, while oil prices fell for the fourth session in a row while the yields on 10-year and 30-year U.S. Treasury securities fell 1.30% and 1.80% respectively. The Bank of Korea declined to cut its overnight rate. On 27 February, due to mounting worries about the COVID-19 pandemic, stock markets in Asia-Pacific and Europe saw 3–5% declines, with the NASDAQ-100, the S&amp;P 500, and the Dow Jones Industrial Average posting their sharpest falls since 2008 (and the Dow falling 1,191 points, its largest one-day drop since the financial crisis of 2007–2008). Oil prices sank to their lowest level in over a year, while yields on 10-year and 30-year U.S. Treasury securities fell to 1.28% and 1.77% respectively. European Central Bank President Christine Lagarde indicated that while the European Central Bank was monitoring the outbreak, it was not yet causing a long-term impact on inflation and thus did not yet require a monetary policy response.
On 28 February, stock markets worldwide reported their largest single-week declines since the financial crisis of 2007–2008, while oil futures saw their largest single week decline since 2009 and the yields on 10-year and 30-year U.S. Treasury securities fell to new record lows at 1.12% and 1.30% respectively. Outgoing Bank of England Governor Mark Carney stated that the British economy (which saw stagnation and car manufacturing declines in the 4th quarter of 2019) was being impacted by the outbreak because it relies heavily on tourism revenues and international manufacturing supply lines. Federal Reserve Chair Jerome Powell stated that the outbreak was posing "evolving risks to economic activity" and that the Federal Reserve would use monetary policy to "act as appropriate to support the economy" but that "The fundamentals of the U.S. economy remain strong." Outgoing Malaysian Prime Minister Mahathir Mohamad announced a RM20 billion fiscal stimulus package.
Ultimately, from 24 to 28 February, stock markets globally plummeted several percentage points, while on Wall Street the indices were down at least 10%. It was the fastest correction in market history from all-time high, taking merely six days to enter into correction territory. The sudden drop in late February was attributed to fears that China could produce a global economic shock, primarily due to quarantines imposed by the state to combat the COVID-19 pandemic, which at the time was classified as an epidemic. Within weeks, stocks fell sufficiently enough to enter bear market territory. Concerning reports of the viruses spread in South Korea, Italy and Iran also prompted fear in investors, mounting to a mass sell-off in Asia-Pacific stock markets as well as European ones.
2–6 March.
Over the preceding weekend, Bank of Japan Governor Haruhiko Kuroda stated that the Bank of Japan would "strive to stabilise markets and offer sufficient liquidity via market operations and asset purchases", and the Bank of Japan subsequently announced that it would repurchase up to ¥500 billion ($4.6 billion) worth of government bonds. On Monday 2 March, European and Asia-Pacific stock markets mostly ended the previous week's consecutive daily losses, while in the United States, the S&amp;P 500 gained 3.9%, the NASDAQ Composite gained 3.7%, and the Dow Jones Industrial Average finished 1,126 points up (or 4.4%; its largest one-day gain since 2009). Oil futures saw their largest daily gain of 2020, while yields on 10-year and 30-year U.S. Treasury securities fell to 1.03% and 1.62% respectively.
On 3 March, the finance ministers and central bank executives of the G7 countries released a joint statement to "reaffirm our commitment to use all appropriate policy tools" to address the socioeconomic impact of the outbreak including "fiscal measures where appropriate" with the central banks continuing to "fulfill their mandates, thus supporting price stability and economic growth." On the same day, the Reserve Bank of Australia and the Central Bank of Malaysia announced overnight rate cuts of 25 basis points (which brought the Australian rate to its lowest level in history), Bank Indonesia announced it would cut its reserve requirement from 8 to 4 percent starting on 16 March, while the People's Bank of China declined to conduct open market operations. South Korean Finance Minister Hong Nam-ki announced a ₩11.7 trillion ($9.8 billion) fiscal stimulus program.
Also on 3 March, due to the Bank of Mexico declining to cut its overnight rate further, Mexican Finance Minister announced a fiscal stimulus program to accelerate government spending. The Federal Open Market Committee lowered the federal funds rate target by 50 basis points with Federal Reserve Chair Powell stating that the central bank "saw a risk to the outlook for the economy and chose to act" and that "the magnitude and persistence of the overall effect [of the outbreak] on the U.S. economy remain highly uncertain". At the close of trading on 3 March, European and Asia-Pacific stock markets had mostly risen, but the S&amp;P 500, the NASDAQ Composite, and the Dow Jones Industrial Average all fell (with the Dow reversing more than two-thirds of the previous day's gain). Oil futures rose and the yield on 10-year and 30-year U.S. Treasury securities fell to record lows of 0.91% and 1.60% respectively (with the fall below 1% on the 10-year securities occurring for the first time in history).
On 4 March, Asia-Pacific and European stock markets continued mostly rising (with the KOSPI alone rising by 2%), while the S&amp;P 500 rose by 4.2%, the NASDAQ Composite rose by 3.8%, and the Dow Jones Industrial Average reversed the previous day's loss by rising by 1,173 points (or 4.5%). However, oil futures fell and the yield on 10-year and 30-year U.S. Treasury securities finished at 0.99% and 1.64% respectively. The Bank of Canada and the Saudi Arabian Monetary Authority announced 50 basis point cuts to their overnight