Coronavirus: Global stocks set to sink as economic reality bites
Global stocks were set to fall today as “ugly” economic data and weak bank earnings suggest a recession is on the horizon.
Asian stocks dropped today, with Japan’s Nikkei falling 1.2 per cent while Hong Kong’s Hang Seng index dropped 0.7 per cent.
That came after Goldman Sachs, Bank of America and Citi all saw profit almost halve yesterday. And US retail sales sank a record 8.7 per cent month on month in March.
US jobless claims are expected to rocket again later today, after they rose by 6.6m in each of the last two weeks. And UK retail sank to their worst drop on record in March, figures showed today.
“Global risk appetite deteriorates as ugly economic data added to weak bank earnings confirm that a sizeable recession is knocking on the door,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.
“Moving forward, there is a growing chance that near zero interest rates will severely hit banks’ profit margins.”
Meanwhile, worldwide coronavirus infections have topped 2m, according to Johns Hopkins University data.
And global coronavirus deaths have hit 137,000.
Optimism that lockdown measures would soon ease has fuelled a semi-recovery in global stocks in recent weeks.
But analysts said a run of awful economic predictions have spooked traders as the economic reality of the coronavirus crisis lands.
The International Monetary Fund (IMF) has forecast a global economic contraction of three per cent in 2020. And the Office for Budget Responsibility has warned UK GDP could collapse by 35 per cent in the second quarter.
“Markets seem to have run out of good news to trade off,” Kyle Rodda, analyst at IG Markets in Melbourne, told Reuters.
“They are still effectively betting on the global economy springing out of this in an energetic fashion. But the challenge is that no-one can give with any level of certainty what the future is going to be like.”
“Now it is too early to tell whether we are at the peak of another roller coaster ride,” Oskardeskaya added. “But the chances are that we see a renewed bearish wave. There is a stronger case building for a W-shape correction. Investor appetite may not return to ideal levels before the much-dreaded earnings season.”
Banking and energy stocks dragged the FTSE 100 down three per cent yesterday. And FTSE futures suggest it could slip further when markets open today.
Meanwhile, US crude oil prices fell below $20 a barrel for the first time after the International Energy Agency predicted global oil demand will fall nine per cent this year.