Economic woes get worse despite rally in markets

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THERE was some relief for investors today as markets rallied somewhat, but the latest economic news was predictably bad.

Traders are hoping that a $2 trillion US stimulus package will help shares and companies recover, with President Trump saying that the US “was not built to be shut down” and America would soon reopen for business.

The UK PMI Composite Index plunged to 37.1, a record low. Services and manufacturing both suffered. 

Asian markets did best, some rising as much as 6%. In London the FTSE 100, down by a third since mid-February, gained 4% or 212 points to 5206. Last night was its lowest level since 2011.

The London Stock Exchange was the biggest riser, up by 10%.

A dire PMI survey from IHS Markit of the eurozone economy was grim. The index fell from 51.6, which is just in growth territory, to 31.4.

Chris Williamson, chief business economist at IHS Markit, said: “Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis. Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus.”

ING said in a note the figures don’t yet reveal the true extent of the fallout from the virus. 

“The PMI plummeted in March, of course it did,” said the bank. Germany’s service sector also contracted sharply, from 52.5 to 34.5. It is plainly headed for a deep recession.

Credit Suisse said investor sentiment “is still extremely fragile”. Most expect further losses while company balance sheets become impaired.

John Cronin, analyst at broker Goodbody, said: “In my view, dividends and buybacks are absolutely not on the agenda in the near term — and I suspect it will become ‘socially unacceptable’ to return capital to shareholders until the full extent of this crisis is known.”

Some think investors are pinning too much hope on the US moves.

Anna Stupnytska at Fidelity said “more radical policy interventions will be needed in the next few weeks”.

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March 25, 2020 |
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