[Good Morning Stock Market] US Stocks Plunge After WHO 'Pandemic Declaration'... "Increased Uncertainty"

[Asia Economy Reporter Minji Lee] As the number of confirmed cases of the novel coronavirus infection (COVID-19) rapidly increased worldwide, the World Health Organization (WHO) declared a pandemic. This declaration is expected to further increase uncertainty in the global financial markets.

[Image source=EPA Yonhap News]

Following the pandemic declaration, major global indices ended the day with sharp declines. Doubts about stimulus measures also emerged in the market, causing the drop to deepen. On the 11th (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed at 23,553.22, down 5.86% from the previous day. The Standard & Poor's (S&P) 500 and the tech-heavy Nasdaq index also fell by 4.8% and 4.7%, respectively. European major stock markets closed before the pandemic declaration, so the declines were not as steep but still maintained a drop in the 1% range.

◆ Hainhwan Meritz Securities Researcher = Despite monetary policies and various support measures by major countries, the stock markets have not rebounded. China has been continuously announcing strong stimulus measures since February, the U.S. cut interest rates by 50 basis points through an emergency Federal Open Market Committee (FOMC) meeting, Japan expanded liquidity supply, and the UK implemented an emergency rate cut the day before.

Policy support measures are also being announced one after another. The U.S. decided to provide a budget of $8.3 billion, and Germany announced an investment plan worth 12.4 billion euros. However, despite these policy supports, global stock markets have not rebounded. This means that monetary policy and the current level of support measures are insufficient to lift the stock markets.

Based on the example of the Great Depression financial crisis, it seems difficult to achieve a stock market rebound through monetary policy alone. Monetary policy does not fundamentally solve the problem. To reverse the trend, large-scale fiscal policy or direct funding to problematic areas is necessary. We should recall the case on the 10th when President Trump's mention of payroll tax exemption caused significant stock price movements.

◆ Seongwoo Park DB Financial Investment Researcher = COVID-19 is expected to significantly contract the Eurozone economy this year. Above all, exports are expected to be severely impacted due to weakened demand from China and the Asian region. Asia and China account for a considerable portion of the Eurozone's export share. In particular, Germany is considered vulnerable to the repercussions of the disruption in the global manufacturing supply chain due to its high export share to China.

Tourism spending is also expected to decline due to travel restrictions. The Eurozone's tourism sector contributes more to GDP compared to other advanced countries. In Italy, rapid domestic spread of COVID-19 has led to cancellations of various sports, cultural, and conference events, which is expected to significantly dampen domestic consumption.

Considering these circumstances, the European Central Bank (ECB) is expected to introduce additional easing policies. Although monetary policy space is limited, further easing is necessary given the worsening economic outlook due to COVID-19 and downward inflationary pressures caused by falling oil prices.

However, fiscal policy is expected to have limited stimulus power due to its cautious stance. The Eurozone has not actively expanded government spending despite the economic slowdown because of EU fiscal rules. Limited policies are insufficient to recover the economy hit by COVID-19, so the flexibility of member states' fiscal spending will be a variable in the Eurozone's economic outlook.

This content was produced with the assistance of AI translation services.