[Good Morning Market] US Stock Market Dominated by COVID Fear

China's Real Economy Indicators Plummet... Fear Grows That US and Europe May Follow as Precedent
Governments Flood with Policies... Low Possibility of Worsening Economic Slowdown

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Despite the Federal Reserve's (Fed) interest rate cuts and liquidity supply, the U.S. stock market plummeted. Fear of the spread of the novel coronavirus infection (COVID-19) still seems to dominate the market. Even though various stimulus measures were announced by the U.S. Congress, the International Monetary Fund (IMF), and the German government, the stock market gripped by COVID-19 fears failed to stabilize.

◆ Sangyoung Seo, Kiwoom Securities Researcher = The Fed announced an additional supply of $500 billion (approximately 615 trillion KRW) in repos (repurchase agreements), and the announcement of the start of COVID-19 clinical trials in the U.S. helped reduce the decline. However, as U.S. President Donald Trump mentioned that COVID-19 could continue until August and that the U.S. is heading toward a recession, the decline widened ahead of the market close.

The Dow Jones Industrial Average fell sharply by 12.94%, marking the second-largest single-day drop in history. This is estimated to have triggered fear as the number of confirmed cases increased by more than 1,000 compared to the previous day in both the U.S. and Germany, accelerating the spread. President Trump’s recommendation to ban gatherings of more than 10 people also heightened the fear. Despite ongoing efforts such as the Fed’s liquidity supply, the Democratic Senate Minority Leader’s proposal of a $750 billion stimulus package, the IMF’s mention of mobilizing $1 trillion in loans, and German Chancellor Angela Merkel’s call for liquidity supply, the market gripped by fear did not stabilize.

However, considering the rise of companies like Zoom (+0.36%), a video conferencing company, ConAgra (+9.76%), a food company, and Moderna (+24.37%), which started COVID-19 clinical trials, it shows that although COVID-19 fears are spreading, some are taking the opportunity to invest in companies expected to generate profits from this situation. With active support policies announced by the Fed and other central banks and governments worldwide, and indications of additional measures, the possibility of a widespread global economic slowdown is not high.

◆ Sangjae Lee, Eugene Investment & Securities Researcher = Despite aggressive monetary easing measures taken by three central banks?the U.S. Fed, the Bank of Japan, and the Bank of Korea?the global stock market fell sharply. The aggressive monetary easing that worked during the 2008 global financial crisis did not have the same effect this time. This is due to concerns that the economic damage caused by COVID-19 in China during January and February will become the reality for the U.S. and Eurozone economies tomorrow.

China’s real economy indicators for January and February sharply cooled as expected, significantly missing market expectations. Industrial production fell 13.5% year-on-year, marking the first contraction since the early 1990s. The decline was larger than the market expectation (-3.0%). Retail sales also dropped 20.5% year-on-year, far below the market expectation (-5.0%). Auto sales decreased from an 18.6% year-on-year drop in January to a 79.1% year-on-year drop in February. Fixed asset investment in urban areas fell 24.5% year-on-year, and real estate development investment decreased by 16.3%. Additionally, the urban unemployment rate in China surged from 5.3% in January to 6.2% last month, the highest since statistics began in January 2017.

February was worse than January, and the poor performance is likely to continue into March. There are concerns that today’s sharp economic slowdown in China will become the reality for the U.S. and Eurozone tomorrow. If, like China, lockdown policies successfully block the spread of COVID-19, the problem may be resolved; otherwise, concerns about a prolonged recession are widespread. Therefore, the monetary easing measures by central banks have failed to create expectations of economic recovery among economic agents.

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