The “black Monday” on the world stock markets was followed this morning by a rebound focused on the most penalized stocks in recent days.
After historic drops of around 8% yesterday, European stock markets are rebounding this morning, as were Asian markets last night. About an hour after opening, the major indices of the Old Continent offered a rebound of around 2%, with for example + 2.1% for the German DAX 30, + 2.8% for the CAC 40 French and even + 4.2% for the Bel 20 in Brussels. While Italy is one of the countries most affected by health restrictions, the Milan FTSE Eb rebounds by 2.5% after having plunged by more than 11% the previous day.
“This is not a correction, but a panic that affected the stock markets,” while the CAC 40 yesterday experienced its largest decline since October 6, 2008, said Aurel BGC this morning. In the United States, the VIX stock volatility indicator, dubbed the fear index, was close to 60 points yesterday, unheard of since 2008, while it has hovered around 15 points in recent years.
Brent crude, which fell about 30% on Monday after Saudi Arabia launched an oil “price war”, which has resulted in the stock markets dropping, recovered by more than 4%. But at $ 36, it has still lost almost half its value since the start of the year. Struck yesterday, Parisian stocks in the sector such as CGG, Vallourec, Total and TechnipFMC were among the biggest increases this morning.
But automotive stocks like Renault, Plastic Omnium and Faurecia are also well represented, and stocks like L’Oréal, Kering, LVMH and Air Liquide also recovered by around 3%.
On the coronavirus front, the epidemic still seems to have peaked in its country of origin, China, but also in South Korea, which was initially very affected. On the other hand, it is spreading to the rest of the world: all the countries of the European Union are now hit, notably Italy where the government has asked its citizens to confine itself. National measures to support businesses are increasing. North America was not spared, the disease spreading to the United States when Canada recorded its first death.
The central banks in question
What can central banks do? For the past decade, they have pursued accommodative monetary policies that have supported the economy in general, and the markets in particular.
But with already low key interest rates and, in the case of the European Central Bank (ECB), asset purchases of 20 billion euros monthly, their room for maneuver seems limited. Moreover, the surprise and massive drop (50 basis points, unheard of since December 2008) decided last week by the US Federal Reserve did not produce a miracle effect on the markets.
Salman Baig, vice-president of Swiss asset manager Unigestion, said: “If lower borrowing costs can help give households greater purchasing power, this aid is limited if millions of people are locked up at home.” they because of anti-virus measures – or simply for fear of catching the disease. In addition, long-term interest rates are already at very low levels.
It is in this context that the Governing Council of the ECB will end on Thursday at noon with the traditional press conference of its President, Christine Lagarde. “Investors would be very disappointed that the ECB’s board of governors will stand by the status quo this week,” wrote Christian Parisot and Jean-Louis Mourier, of broker Aurel BGC, on Monday.
“Clearly, once again, the rate cuts already expected will not be enough on their own – they must be part of a more comprehensive package, as China has shown,” said Baig.