US and European markets plunge further after Trump travel ban
Stock markets in the US and Europe plunged further on Thursday as Donald Trump’s unilateral ban on travel from 26 EU countries sparked panic from investors, bringing the total loss on the FTSE since January to more than £500bn.
The US benchmark index, the S&P 500, lost 8.2% of its value in 30 minutes, triggering automatic halts in trading on Wall Street for the second time in a week. The Dow Jones industrial average dropped by more than 2,000 points in early trading to below 21,500 points – a fall of 8.8%.
Britain’s FTSE 100 index lost 9% at points on Thursday afternoon, putting it on course for its worst day since the market crash of 1987. The market value of companies listed on the FTSE 100 has fallen by more than £500bn since the index’s peak in January, before the severity of the coronavirus outbreak was evident. The pound also suffered, falling 1.6% against the US dollar to $1.262 as investors sought safety.
The Euro Stoxx 600 index, which tracks the biggest listed companies in the UK and eurozone, fell by 10% in afternoon trading, putting it on course for its worst day ever.
The widespread losses came despite the European Central Bank on Thursday becoming the latest central bank to unveil its response to the coronavirus outbreak, following the US Federal Reserve and the Bank of England, which announced an emergency cut in interest rates on Wednesday.
The ECB’s stimulus measures to try and prop up the economy included loosening restrictions on lending by eurozone banks and buying more private sector bonds.
However, the ECB president, Christine Lagarde, did not unveil the interest rate cut expected by many – an acknowledgement of the limited room for manoeuvre for central banks after a decade of low interest rates.
Lagarde said: “It’s clear to us that the economies of the world and the economies of the euro area are facing a major shock.”
Investors have rushed to put their money into the relative safety of government bonds. Yields on benchmark bonds, which move inversely to prices, have plummeted.
Holger Schmieding, an economist at Berenberg investment bank, said the ECB would not be able to avert a recession in the eurozone. However, he said “the ECB package and further steps by bank supervisors as well as by fiscal policy, can limit second-round effects”.
He added: “The ECB today has made it even less likely that the severe Covid-19 shock to the real economy could morph into a financial crisis.”
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