You won’t have failed to notice that stock markets and commodities are in a full blown meltdown this morning. We were due to open the week down due to ongoing fears about the economic impact of coronavirus on the global economy. This was then put on steroids as OPEC and Russia fell out on Friday over the future of oil output and prices, and Saudi Arabia decided to boost production and slash oil prices.
Its time to start looking at this seriosuly now.
Full blown panic
This is the sort of day that gets named on the stock exchange. The Wall Street Crash of 1929. Black Monday of 1987. The Flash Crash of 2010. The Great Recession of 2009. European markets are down firmly. As of writing, US futures are trading at limit down, which means they cannot go lower until markets open, where losses could become even steeper and trigger circuit breakers designed to stop utter carnage taking place.
These are the headline numbers that stick out for me this morning:
- FTSE 100 opens lower by nearly 9% – “recovered” to just over 6% at the time of writing
- oil falls 30% after Saudi production measures – “recovered” to 20% at the time of writing
- Sterling vs Dollar flies past $1.31 – due mostly to FTSE 100 moves
- US futures trading at limit downs – Dow due to open down 1303 points with possible worse losses
- US treasuries all under 1%
- UK 2 year bons turns negative
- Gold near $1700 per ounce
The markets are in a full blown panic, and I’m not sure they know what to do.
The surprice decision around oil certainly made things worse. No one expected OPEC and Russia to fall out the way they did, and the gamble from Saudi Arabia to raise production and slash prices came from nowhere. If you’re wondering why this is important, oil is a major influence on inflation. It will result in lower fuel prices in the UK when those cuts filter through. But it will result in much lower inflation, where the Government has a target to keep it stable at 2%.
Almost all analysts are now talking about global recession. This is a big move. The R-word has been used when talking about individual regions, such as Japan, Europe etc. But to talk about global recession is a huge step up. Much of these moves are driven due to the measures taken by governments to try to contain the spread of COVID-19. Italy for example took the dramatic step over the weekend to quarantine a large part of the north of the country, locking down 16m people. This is going to have a huge effect on the third biggest economy in Europe and the 8th biggest in the world.
I will talk about the measure more in a moment. But the fenestration industry, as well as everyone else, needs to start looking at the real-world impacts of this. Its all but certain that the UK and Europe will now be in recession. We’ll only know when the official figures are released. I expect major measures from the Government in this week’s budget to support the economy and small businesses.
The one silver lining for fenestration is that the nature of our work means we can continue to do business with reduced person-to-person contact. Home owners can deal with installers online for much of the sales process. Handshakes aren’t necessary. Signatures can be done digitally. Payments can be done digitally. Further up the supply chain communication can be done digitally, and on the factory floor measures can be put in place to limit person to person contact without harming production. The virus, however, is a nightmare scenario if you’re a hotel, restaurant, cruise line, airline or anything else to do with vacations and hospitality.
The last time we saw market moves like this was the financial crisis. Although that was hugely damaging, there was a degree of certainty around that whole situation. We knew that a bank was going under, we knew that other banks would be affected, we knew the type of measures that had to be taken to stop the banks and the globabl financial system from going under. This is a whole different scenario. We know very little and we know even less about what is to come in the coming weeks and months. That is why markets are in panic, because they don’t know what to do.
Measures are justified
I have heard far too often that this whole thing is an overreaction and that we’re going over the top. That its “just like flu” and that we should just carry on as normal. I can’t tell you how frustrating that is to hear.
Those comments I have heard have been said by those who are less than middle-aged, perfectly healthy. People who if they caught the virus would feel like crap for a week or two and then recover fine. But the measures being taken by governments all over the world aren’t to protect those who will recover, but to protect those who are vulnerable, and there are millions in each country.
The chances of death from the virus for those over 60, and especially for those over 80 spike much higher. Consider also at that age many will have underlying conditions. The measures being taken are to protect those, as well as others who have serious medical conditions where a virus like COVID-19 would be a big deal. So if you’re one of those saying that this is an overreaction, think for a moment if you have an elderly relative, or a friend who has another serious disease or low immune system. Would you be happy to see them become infected with this virus and have it threaten their life, just because you didn’t want to be inconvenienced?
Measures are also in place in an attempt to stop the savage damage to the world economy that will most likely happen. Personally, I don’t think we can control this now. But governments have to at least try, else risk being accused of not doing enough quick enough. The reality is that this is going to be nasty, its going to be prolonged. Stimulus will be needed by governments and central banks to prop up businesses, but there is a growing risk of defaults and a credit crunch in the banking sector.
There is much we still don’t know. We have to hope that the measures being put in place at least slow down the spread of the virus and some level of clam returns to markets and indeed the media. But to be honest, the chances of that happening are slim now. It may now be time for businesses to take a recession-footing and put in place plans to ride out the storm.
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