March 24, 2020 update

Thursday 19 March 2020

International equity markets continue their negative trend. In an unprecedented move, before the opening of the US markets, the Fed put in place an all-encompassing emergency plan, forgoing the limits of monetary policy in an attempt to directly access the real economy.

In fact, in addition to declaring that there will no longer be a limit to quantitative easing, the Fed will lend directly to companies. Initially the big corporations, but a plan is also being put in place for small and medium-sized enterprises. It will act as a lender of last resort for student loans, credit card loans and state-backed loans to SMEs.

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Early estimates indicate that such a stimulus plan could reach 4 trillion US dollars. This action is intended to avoid mass corporate bankruptcies, which could precipitate the situation from a recession to a deep economic depression, as well as providing unlimited liquidity to the financial system to ensure day-to-day operation. In the meantime, they are making an effort to fast track the Senate's trillion-dollar tax policy plan, after Democrats and Republicans failed to reach an agreement on Monday.

Meanwhile, in Europe reliable press sources report that Germany is on the brink of abandoning their zero deficit policy. This new and comprehensive intervention plan that would amount to 10% of German GDP, including:

–higher debt (150 billion euros); 

–a new special fund to support companies in distress (100 billion);

–An extraordinary loan to KfW, the German CDP (formerly Cash Deposits and Loans) to support companies (another 100 billion).

Ultimately, the Central Banks and governments cannot stop the spread of the pandemic; however, their actions and policies should ensure that the extensive liquidity and the fiscal intervention plans should hopefully be enough prevent an exogenous crisis from turning into a systemic crisis.

How the Markets performed yesterday

Japan closed positive at 2%, on the back of intervention expectations by the BOJ directly on equity ETFs. However, the rest of Asia has saw strong corrections, from -13% in India, to -7% in Singapore, to -5.5% in Korea and -4.6% in Hong Kong.

Europe, started the morning in deep negative territory and thanks to the announcement of Fed intervention managed to recover some ground. However, this was not enough and closed negative, with the Eurostoxx 50 index at -2.5%, the FTSE MIB at -1%, the CAC 40 at -3.3% and the FTSE 100 in London at -3.8%.

The US also closed down -2.9% (S&P 500 index), with the exception of the Nasdaq 100, which managed to close with a slight positive at 0.2%. In bond markets, the 10-year U.S. Treasuries showed high volatility with the yield on the 10-year maturities first falling sharply to 0.7 percent, then closing almost at 0.8% on Friday. Italy's differential with Germany remained below 200 basis points, a sign of renewed confidence in the ECB's support through the ‘Pandemic Emergency Purchase Programme’ (PEPP).

On the international currency front, the US dollar weakened due to the Fed's new announcements but did not go above the 1.08-euro level (1.069 previously).

Finally, oil recovered slightly from Friday to close at 27.5 dollars per barrel (Brent), while gold rebounded by 3.7% to 1,554 dollars an ounce, on the basis of the unlimited liquidity that will be injected by the US Central Bank.

Today’s opening bell

The reaction of the Asian markets overnight was very positive, with Japan's Nikkei 225 up 7%, Korea up 7.5%, Australia up 4% and Hong Kong up 3.5%. Futures on the Eurostoxx 50 are up 3.9% and S& P 500 futures are up 3.3%.

 Our outlook

–Strong responses like those seen from the Fed and ECB are of paramount important help to contain the health crisis, even if this leads to an almost total suspension of economic activity, albeit temporary, and ultimately to prevent a large scale financial crisis akin to the GFC of 2007/2008.

–We expect that market volatility will remain high until some good news is received from a medical and pharmacological standpoint or confirmation that the containment measures are having the desired effect.


Unless otherwise stated, all information contained in this document is from Amundi Asset Management and is as of 13 March 2020. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management, and are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on half of trading on behalf of any Amundi Asset Management product. There is no guarantee that market forecasts discussed will be realised or that these trends will continue. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. This material does constitute an offer to buy or a solicitation to sell any units of any investment fund or any services.

Date of First Use: 24 March 2020

Doc ID: 1126993

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