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Escalating coronavirus pandemic is posing high economic and social costs for the world. Cancellation of public events, closure of schools and universities, travel bans, among several other measures, highlight how countries are fighting hard to combat the virus outbreak.
Coronavirus that originated in the Chinese city of Wuhan has spread to more than 150 countries, infecting over 1,50,000 people and taking away more than 6,500 lives, globally.
Significant economic fallouts are evident with shocks to supply and demand, as the COVID-19 cases are spreading day by day and human fatalities are increasing at an alarming rate across countries due to the virus outbreak.
The past 20 days have been a nightmare for global investors with trillions of dollars being wiped off from the markets, which are rattling to gain upside momentum.
Stock Markets fell to record lows
Australian markets plunged to a low of 4879 during the morning of 13 March 2020 with billions of dollars lost since its all-time high in February 2020. A near 10% crash in Wall Street was witnessed accompanied by falls in European markets, with indicators forecasting deepening horrors all around the world.
The Dow Jones Industrial Average reached a low of 21,200 while S&P 500 fell to 2,510, reflecting stocks falling into the bear market territory. Asian shares, including Japan, China and India also plummeted.
The selloffs were initially sparked after WHO declared coronavirus outbreak a pandemic and US President announced a temporary ban on travellers from Europe.
However, the Futures Market and the stocks of major banks started to rise on 13 March 2020 after the early morning fall, demonstrating an astonishing return from their all-time lows.
ALSO READ: Coronavirus Takes a Toll on Global Markets
The shares of National Australia Bank Limited (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) also rebounded accompanied by a rise in ASX 200 Futures. This optimism was due to declaration of a fiscal push of nearly A$9 billion by RBA to ease the growing credit crunch in the domestic economy.
NAB, Macquarie pulled back Capital Notes Offer
NAB, in an update near the end of February 2020, announced to have increased the amount it was looking to raise through Capital Notes 4 (financial instruments that give a constant flow of coupons) offer from A$750 million to at least A$1.95 billion.
However, the country’s third-largest lender pulled back its offer of Capital Notes 4 on 12 March 2020 due to ongoing market volatility that could hit the trading value of the notes. The bank stated that market conditions have changed substantially since it announced plans to roll out its offer on capital notes and the decision is in the best interests of relevant stakeholders.
Australia’s Macquarie Bank Limited (ASX: MBL) also withdrew its A$500 million Capital Notes 2 offer, a day after NAB cancelled its offer, owing to highly volatile market conditions in recent weeks.
Companies are considering avoiding huge blows in the financial markets, exacerbated by fears that the coronavirus impact could hit the value of the notes.
Notes are also known as hybrids, as they have partial characteristics of shares and debt. The notes are an extremely popular source of investment amongst investors who trust the banking sector because they provide relatively higher returns. They carry greater risk, as they are the first to bear losses when things don’t go as expected.
As per market experts, if NAB and Macquarie had started to trade before the price crash, then the prices would have fallen as soon as the trade would have started, enraging investors and putting the banks under the impression of financial pressure.
Hence, it was hard for the banks to figure out new prices due to high market volatility.
Bleak Consumer Sentiment
A recently released NAB Business Confidence Survey for February 2020 has indicated that both business confidence and conditions fell during the month of February 2020. A decline of 3 points in business confidence to -4 and 2 points in conditions to 0 index points was reported during the month amid economic fallouts due to rising concerns regarding COVID-19 outbreak.
Meanwhile, the survey unveiled that it was too early to quantify the effect of coronavirus with about 50% of the firms reporting no impact to date. However, this number could increase if the virus spreads, which is expected to result in further deterioration of confidence.
ALSO READ: Business and Consumer sentiment drops amid COVID-19 impact
Westpac-Melbourne Institute Consumer Sentiment Index fell 3.8% to 91.9 in March 2020 from 95.5 in February 2020, hitting a five-year low and reflecting the effects of coronavirus outbreak accompanied by a collapse in the financial markets.
Westpac-Melbourne Institute Leading Index, the six-month annualised growth rate that shows the pace of economic activity relative to trend three to nine months in the future, fell to -0.46% in January 2020 from -0.28% in December 2019.
All the above-mentioned indices and surveys highlight that the Australian economy is surrounded by bleak consumer sentiment, at present.
Stimulus plans to shield the global economy
Economists at all major central banks are anticipating a contraction in the March 2020 quarter following growth of just 0.5% during the December 2019 quarter, on a seasonally adjusted chain volume term. If there is another contraction in the June 2020 quarter, it will mark the onset of the recession in Australia.
RBA slashed its cash rate by 25 bps in its 3 March 2020 meeting, with the cash rate reaching 0.5%.
The cash rate is taken as a base rate for the banks to set interest rates on the products like home loan and savings account. The big four Australian banks – NAB, Westpac, ANZ and Commonwealth Bank, reduced their home loan interest rates immediately after hearing about the rate cut.
The central banks all around the world are taking measures to reduce interest rates and inject stimulus in their economies to ensure the smooth functioning of financial markets and avoid any slump in business due to coronavirus.
ALSO READ: COVID-19 Epidemic: Global Rate Cuts; OECD Downgrades Economic Growth Forecasts
PM Scott Morrison has announced A$17.6 billion stimulus package with major thrust on jobs, cash flow and investment.
The European Central Bank has announced a US$135 billion fiscal stimulus with no interest rate cut on 12 March 2020 to fight the coronavirus impact.
The Federal Reserve slashed its short-term interest rates to a target range of 0%-0.25% on 15 March 2020, and ~ US$700 billion in treasuries and mortgage-backed securities purchases in the coming weeks.
Australian economy is likely to be weak during the first half due to disruptions, primarily caused by COVID-19 outbreak. But for the second half of the year, there is an expectation of positive momentum if the virus is contained with improvement in global economy.
