Encouraging Monetary Response – No Panacea For Health Crisis
David Beaton
David Beaton
Chief Investment Officer

We are indeed living in extraordinary times. Not since the Spanish Flu epidemic just over 100 years ago has the world faced a pandemic of such proportions as created by Covid-19. The human tragedy that we are witnessing is truly shocking and regrettably still has further to go. In addition to the human and societal impact the virus is having, it has also been the trigger for an unprecedented period of financial and economic volatility not seen since the Great Financial Crisis some twelve years ago.

So, in these extraordinary times, we have seen extraordinary actions from global central banks and governments in response to the near-shutdown of the global economy and the quickest decline from market peaks. From their respective peaks on 19th February (just 4 weeks ago) the S&P is down 27%, the DAX -28% and the UK market is
-26%.

While declines in risk assets are to be expected during times of uncertainty, this time has also seen weakness in perceived safe-haven assets such as government bonds and gold. In response to this volatility, we have seen global interest rates converge to the zero-bound range through rate cuts in the US, UK, Australia, Norway and South Korea to name but a few, as well as over $4 Trillion of liquidity injections in the form of asset purchase programs and short-term liquidity support.

As if this was not enough, global governments have weighed in with funding support of over $2.6 Trillion. While we appreciate that monetary policy is no panacea for a health crisis, it does nonetheless go some way to minimising the economic fallout. What has been impressive this time around is the speed of these policy responses compared to the staggered response in 2008, so this must be seen as a positive and partly the reason behind a modest reduction in market volatility late last week. While encouraged by the monetary policy response, we have yet to see the true economic impact of the virus and the consequential impact on corporate earnings, therefore we expect any market rebound being uneven at best.

So, as the US Senate debates and prepares to pass a $2 trillion stimulus package, Covid-19 cases in New York continue to rise while Canada has announced a 72% surge in new cases. German consumer sentiment this morning fell to its lowest level since 2009 as European leaders meet today to discuss additional stimulus plans.
It is only time that will tell what the coming weeks and months hold, but the feeling is that we are in good hands as the nation continues to take direction from the Irish Government and the HSE.

Our team of staff is fully operational, between the majority who are working from home and the small number that remains in the office. If you have any questions or queries, we would encourage you to please contact your Cantor Fitzgerald broker/portfolio manager. Contact details for each individual team member can be accessed here on our website.