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The economic implications of the Covid-19 have led to some of the biggest institutions from the world in coming together and taking collective action to fight the situation. The US Federal Reserve, on 3rd March 2020 announced an interest rate cut, in an extremely aggressive stance, to protect the economy of the country from all kinds of negative impacts that could come due to the epidemic. This was followed by a marginal rise in the number of cases in the United States in the first three days of March. It is reportedly the first such emergency interest rate cut since the 2008 Financial Crisis. The new benchmark interest rate is now in a range of between 1 per cent and 1.25 per cent, as per the announcement of the Fed Chairman Jerome Powell. He also mentioned that in the current situation, the underlying fundamental factors for the United States economy are robust, but this is a pre-emptive defensive policy action, just to soften any potential blowback of the coronavirus on the countryâs economy.
The Covid-19 disease has rapidly spread across the globe, and till the last week of February 2020, no slowdown of the disease was in sight. This was because apart from China, which is being considered the epicentre of the pandemic, some of the other countries, such as Italy, Iran and South Korea reported a significant rise in the number of daily cases coming into the picture.
This had raised the alarm for various central banks across the world, as experts started highlighting how this could lead to a global economic slowdown, as some of these countries play a critical role in the global trade scenario. Travel and Tourism sector in the Europe and United States of America had already taken a hit, but other spaces, such as food and beverages as well as financial services too have started showing a decline in the first quarter of 2020, due to the deteriorating supply chain condition, as China is considered one of the global logistics centre.
Due to the prevailing situation, economists and financial analysts in the United Kingdom have started speculating the Bank of Englandâs potential policy action to support the industries that are experiencing a contraction. Let us dive a little further into this.
What will be the stance of Bank of England on the issue?
For the last few days, especially after the US Fedâs decision to slash interest rates on 3rd March 2020, Bank of England is being questioned about the potential action it will take to help support the economy and protect it from any negative impacts of the Covid-19 Outbreak. The governor of Bank of England, Mark Carney, had suggested the bank of England would cut the interest rates so that any potential impact on the economy could be slowed down. In a statement to the Parliamentary treasury committee, he mentioned that the BoE would help in managing any blow to the businesses and industries of the United Kingdom, as well as itâs people in this phase of distress, which even though could just be a temporary phase, and the economy could recover soon.
This policy action of slashing rates is important as it eventually affects the aggregate demand, and not the aggregate supply in the economy, which is currently taking a direct hit from the coronavirus outbreak, as companies are unable to streamline their supply chain processes. This is also something that the Monetary Policy Committee, which is in charge of taking interest rate decision in the country, will deliberate upon.
The other facet of this debate has come from the Chief Executive of the Financial Conduct Authority (FCA) of UK, who had previously stated that the Bank of England should be patient before taking any potentially unnecessary rate decision, as there still further clarity on the exact impact of the Covid-19 on the UK economy is required. He believes that some help would be required for the supply chain in certain industries, which could be made available through the banking system rather than stimulating the Monetary Policy.
Though acting on the similar lines of US decision, on 3rd March, various high street United Kingdom based banks and financial institutions such as the likes of Royal Bank of Scotland, Santander UK and Barclays announced that they would be rolling out emergency loans to help the businesses that have been experiencing financial strain due to the economic implications caused by this pandemic. This has been primarily done due to the manufacturing and factory completely at a halt in China, which caused the logistics functions and supply chains of these UK based companies to be at significant risk. All these banks are reaching out to all of their small and large customers to understand any impact that the coronavirus might have caused to their businesses and to additionally help these businesses with commercial loans at a relatively lower rate of interest.
These actions could have a significant impact on the investorsâ mindsets for these companies, which could be a catalyst in changing the stories for these banking companies in the stock market. Letâs have a closer look at the stock price performance of some of these companies.
BARC Stock Price Performance
As on 6th March 2020, at 12:00 P.M (Greenwich Mean Time), by the time of writing this report, the Barclays Plc share was trading at a price of GBX 130.16 on the London Stock Exchange market, a decline in the value of 3.36 per cent or GBX 4.52, in comparison with the price of the share on the previous trading day, which had been reported to be at GBX 134.68. As of the time of reporting, the market capitalisation of Barclays Plc has been reported to be at a value of GBP 23.338 billion, with respect to the current trading price of the companyâs share.
The Barclays Plc share had given a negative return of around 20.90 per cent in value, in the previous one year, since March 05, 2019, when the share was trading at a price of GBX 164.56 at the time when the markets closed. It was also reported that the companyâs share has given a negative return of around 6.91 per cent, in the last six months, as opposed to the stock price of GBX 139.82 at the time when the markets closed as on September 05, 2019. Barclays Plcâs share has been reported to have given a negative return of approximately 24.75 per cent, in the last one month time from the share price of GBX 172.96 that the share set as on February 05, 2020.
The beta of the share of the company has been calculated at 0.82 by the time of writing this report. This points to the fact that the share price movement of the companyâs stock, is less fickle, in comparison with the movement in the price of the comparative benchmark index.
RBS Stock Price Performance
As on 6th March 2020, at 12:10 P.M (Greenwich Mean Time), by the time of writing this report, the Royal Bank of Scotland Group Plc share was trading at a price of GBX 153.75 on the London Stock Exchange market, a decline in the value of 4.38 per cent or GBX 7.05, in comparison with the price of the share on the previous trading day, which had been reported to be at GBX 160.80. As of the time of reporting, the market capitalisation of Royal Bank of Scotland Group Plc has been reported to be at a value of GBP 19.447 billion, with respect to the current trading price of the companyâs share.
The Royal Bank of Scotland Group Plc share had given a negative return of around 40.84 per cent in value, in the previous one year, since March 05, 2019, when the share was trading at a price of GBX 259.90 at the time when the markets closed. It was also reported that the companyâs share has given a negative return of around 19.27 per cent, in the last six months, as opposed to the stock price of GBX 190.45 at the time when the markets closed as on September 05, 2019. Royal Bank of Scotland Group Plcâs share has been reported to have given a negative return of approximately 30.74 per cent, in the last one month time from the share price of GBX 222.00 that the share set as on February 05, 2020.
The beta of the share of the company has been calculated at 1.10 by the time of writing this report. This points to the fact that the share price movement of the companyâs stock, is more volatile, in comparison with the movement in the price of the comparative benchmark index.
Comparative share Performance of BARC and RBS
(Source: Thomson Reuters) Daily Chart as on 06-March-20, before the closing of the LSE Market
