By Eliman Dambell
Thursday, 12th March 2020. The day the world closed? The world’s largest economy closed its doors to travellers from Europe as the situation with the Coronavirus worsened. In an statement from the White House, President Trump announced that for 30 days, starting from Midnight Friday, the US will not allow any flights from Europe.
In the immediate aftermath of this news announcement we saw huge bearish activity taking place within European related markets. The EUR fell considerably against most major currencies pairs, going from $1.14 – $1.12 against the Dollar. The DAX also experienced huge levels of selling, falling to a 4 year low of 9557 in the process.
The UK, who President Trump didn’t include in his travel ban, also saw it’s national Index, the FTSE 100 drop on the news, as it reached an 8 year low. Reaching 5446. Trading in GBPUSD, which is also known as cable, reached $1.27, it’s lowest point since October of 2019.
So what next?
The European Response
12:45 GMT will see the European Central Bank give it’s rate decision, in what many expect to be a rate cut. However the ECB which currently has 0% as it’s base line margin rate may need to do some radical to help ease the concerns of businesses and consumers alike. Prior to President Trump’s announcement, Christine Lagarde, who is the Bank’s chair already stated, that Europe must come together as a whole, and take the decisions necessary to begin the steps in solving this ever growing problem.
The FTSE which is now quoted at a 8 year low, is seeing all of the gains experienced from January 2016 wiped out within the last 2 months. Investors who might have been involved at that time, now likely face the hard decision whether to continue to hold their shares, or flee these markets, and find shelter within safe havens
Like the FTSE 100, the DAX30 has also seen huge gains turn into losses. In this instant however, 2 years worth of gain have been wiped in 2 months. Investors in this index, likely face similar situations to those from the UK. This afternoon’s release from the ECB will likely be eagerly anticipated by those hoping that the powers that be, can create some market stimulus, to ease their current losses.
Sitting at its lowest point since the UK 2016 Brexit referendum, the DAX still hasn’t reached it’s longer term floor, which is around 1000 points from where the markets currently sit. Many believe once the US markets open later today, we may be looking at a full scale sell off of most major markets.
Regardless of what takes place in the next few hours, it will be interesting to see how not only markets, but consumer behaviour changes. The panic which may follow, will likely also create opportunities for those skilled enough to find them, so trading volumes in both European and US markets may continue to increase in this period.