Panic over the Covid-19 fallout gripped global stock markets yesterday in the worst sell-off since the financial crisis a decade ago, while oil prices slumped in their worst drop since the Gulf War almost 30 years ago.
Investors appear braced for a further wave of selling despite the market betting the US federal reserve will soon match the ECB’s rock-bottom interest rates, as governments across Europe may follow Italy in taking costly quarantine measures.
The Economic and Social Research Institute predicted Irish GDP growth will grind to a halt and unemployment will creep above 5% this year under any Italy-style quarantines to control Covid-19.
ESRI research professor Kieran McQuinn told the Irish Examiner that domestic economic growth, even under a four-week quarantine period, will slow this year, while a quarantine of around eight weeks or beyond will lead to “a very significant” economic fallout in which GDP falls to zero and unemployment rises.
Under the ESRI’s central projection for a quarantine period of four weeks, GDP slows from 5.5% in 2019 to between 3% and 3.5% this year.
A quarantine, whether voluntary or imposed by the authorities, as the Italian government sanctioned in Lombardy in recent days, would involve the widespread closure of schools for a number of weeks.
The latest slump, which extended the waves of market selling into a third week, was triggered by the remarkable crash in the price of crude oil yesterday.
Energy markets are flashing red for a potential world recession and stock markets are likely to fall even further.
The price of the global crude benchmark, Brent, shed a further $10 to $35.73 a barrel, its worst drop since the Gulf War almost 30 years ago.
The plunge revived crisis-era fears for the health of European and US banks and investment funds which could be exposed to the economies of oil producers or energy markets. Such so-called secondary effects have in the past turned stock market selling into routs.
A circuit breaker to trading was triggered as the S&P index in the US plunged and European markets, including the Ftse 100 in London and the Dax in Frankfurt, slumped by around 7.5%.
“It has been another day for the history books,” said Chris Beauchamp, chief market analyst at online broker IG.
“The losses in equities have been easily overshadowed by the high drama in oil markets, but a day that has seen a near 9% fall for the Dow before an almost 5% rebound is not one that will be forgotten quickly.”
In Ireland, the Iseq index fell over 400 points, nearly 6.5% and almost matching the losses of European markets.
Irish banks tumbled for their worst one-day losses since the financial crisis
“We think that global equities could yet fall further in the coming weeks and months, despite the plunge in most markets today,” said Oliver Allen at Capital Economics in London.
“That suggests to us that global equities will stage a comeback. But that might still be weeks or even months away, and the interim could be painful.”
In Ireland, the fall in the crude oil price should trigger lower prices in electricity and pump prices in the coming weeks.
- The HSE have developed an information pack on how to protect yourself and others from coronavirus. Read it here
- Anyone with symptoms of coronavirus who has been in close contact with a confirmed case in the last 14 days should isolate themselves from other people - this means going into a different, well-ventilated room alone, with a phone; phone their GP, or emergency department - if this is not possible, phone 112 or 999 and in a medical emergency (if you have severe symptoms) phone 112 or 999