The market correction, which had already begun in February, continued in March as a severe slump on the stock markets. This was triggered by fears of a global recession due to the ever increasing spread of the corona virus. Extensive rescue packages and monetary policy measures in the USA and Europe helped to stabilise the markets at a low level.
In March, the international stock markets collapsed drastically. The German stock index DAX lost -16.44%, the broad European index Stoxx Europe 600 slumped -14.80%. In the USA the S&P 500 Index lost -12.27%, and in Asia the Hang-Seng Index dropped -8.92%. The global stock index MSCI World was down -13.37% - all figures in euro terms.
This was triggered by fears of a global recession due to the corona pandemic that spread first in Asia, then in Europe and finally in North and South America. The speed and momentum of the sell-off were extraordinary: the S&P 500 experienced its weakest month since 2008 and the VIX volatility index which measures the volatility of the US equity market reached its highest level since it was first calculated in 1993.
In March many countries in Europe and the USA imposed exit and contact restrictions, some nationwide, some regional, to slow the spread of the corona virus. In order to mitigate the economic impact of these measures and to stabilize the stock markets, governments in Europe and the USA quickly adopted extensive aid measures.
The German government prepared a rescue package in height of EUR 750 billion including support for companies and the self-employed. It also lifted the debt brake and announced additional EUR 120 billion in new government spending for the current year. The European Central Bank decided on a purchase program for government and corporate bonds also in height of 750 billion euros and announced that from now on it would also purchase if necessary more than a third of the outstanding government bonds of one country in the Euro region. The plans of Eurobonds to combat the corona crisis, which had been discussed in the meantime, failed for the time being due to resistance from Germany and the Netherlands.
With 2,000 billion the USA created the largest aid package in the country's history. The US Federal Reserve cut key interest rates in March in two rapid steps by 150 basis points to the current range of 0.0% to 0.25% and also announced that it would buy US government and corporate bonds. It initially had planned to spend USD 700 billion on these purchases but announced that it would continue to buy until the capital markets will stabilize again. The Bank of Japan announced that it would double its ETF purchases to an annual volume of USD 112 billion.
These extensive rescue packages were able to halt the free fall of the equity markets in the second half of the month and stabilize them at a low level and with continued strong fluctuations. At the same time, these very expansive measures caused high volatility on the major bond markets and put them under pressure, especially in Europe. The yield on 10-year German government bonds rose from -0.61% to -0.46%, but in the meantime reached a record low of -0.75%. The yield on 10-year US treasuries fell from 1.15% to 0.70% but fluctuated in the course of the month between a record low of 0.30% and a sudden jump to 1.10%.
The price of oil halved from USD 51 to USD 25 per barrel, on the one hand because of declining demand, but also because Russia and OPEC could not agree on production cuts. Gold, on the other hand, benefited. The price of the fine ounce rose from USD 1,587 to USD 1,612.
Leading economic indicators collapsed or developed very weak: the German ifo business climate index fell from 96.0 to 86.1 points, reaching the level of the 2008 financial crisis. US consumer confidence also collapsed from 101.0 to 89.1 points. The purchasing managers' indices for industry continued to fall in Germany, the euro zone and the USA. The figures for the service sector fell even more sharply.
In China, however, the situation improved in March. On the one hand, the number of new corona infections fell to a low level, while on the other hand the purchasing managers' indices for industry and services recovered and jumped back above the important 50 point mark at 52.0 and 52.3 respectively, thus at least pointing to an improvement compared to previous month.
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