Business, Finance

Stimulus progress lifts stocks

27 March 2020

Stimulus progress lifts stocks

What happened?

Other central banks and governments have been ramping up their policy response. Germany on Monday signed off on an emergency budget, equivalent to 3.6% of GDP, including a new rescue fund for additional spending, aid for companies, state-backed loans, and loan guarantees. The package comes on top of a prior loan-guarantee scheme, and Germany is also reported to be working on a follow-up package for after the initial crisis subsides, according to Bloomberg. EU leaders also continue to work on additional measures, including precautionary European Stability Mechanism credit lines to some member countries and liquidity facilities focused on healthcare spending.

What comes next?

Encouragingly, recent new lows in stocks have been accompanied by either sideways or even lower volatility, indicating markets are starting to become more comfortable with the potential range of outcomes we face. Looking ahead, gains could be consolidated if we see more good news that containment measures are starting to rein in the spread of the virus. The daily growth of new COVID-19 cases in Italy stayed stable on Tuesday, raising hopes that the lockdown enforced two weeks ago is working. Meanwhile, in China’s Hubei province, where the pandemic started, the coronavirus also appears under control, and travel restrictions are set to be eased, although other parts of the country are tightening controls to deal with the risk of imported infections.

How to respond?

  1. Stay invested. Central banks across the world have rolled out their entire GFC playbook in a matter of days, while fiscal policymakers in major economies have unveiled packages worth over 10% of annual GDP (with more to be expected) in an effort to support the economy.


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