The advancement of the new coronavirus has been directly affecting markets around the world and, along with it, has also raised investor concerns about the impacts on the global economy. Several analysts said the impact of the Covid-19 pandemic already has a greater effect than the 2008 financial crisis and could lead the world economy into a new recession.
Fighting the virus
As a measure to try to contain the new coronavirus pandemic, much of the world’s population has been subjected to isolation measures, including the world’s largest economies such as China, the USA and countries in Europe.
The restrictions on the movement of people started with the suspension of classes and gradually were expanded, with the determination also to close the trade and services, and with factories being forced to interrupt production.
Impact on the economy
At the same time, there is a shock of supply, through the breakdown of global production chains, and of demand, with all consumers stopping consuming around the world, whether due to falling income or fear of recession.
In China, although part of the activities are being resumed, GDP in the first quarter recorded the first contraction in decades. In the United States, GDP had the greatest quarterly decline since the 2008 crisis. The fall was 4.8% and broke the country’s largest historical sequence of increases.
The International Monetary Fund (IMF) released in its report an estimate of a 3% decline in this year’s global GDP. Fears of a global recession have led central banks to cut interest rates and announce billion-dollar stimulus measures. In some countries, the possibility of negative interest rates is already being discussed. Several governments have started to release large amounts of money to reduce the impacts of the pandemic, but the feeling of panic still prevails in the markets, since it is still difficult to measure the duration of the restriction measures and the reopening of activities.
According to analysts, a U-shaped recovery is the most likely scenario. In other words, the recovery of the economy may occur more slowly and more difficult than a “V” scenario, for example. The most optimistic believe in a 1.5% growth in the world economy this year and recovery in a few months. The most pessimistic agree that the complete restoration of the economy can take months and even years.
The pandemic has caused historic losses in the stock markets. In the USA, exchanges recorded the worst quarter since 1987. In the world, it is estimated that more than US $ 13 trillion in lost market value.
The American index SP500 registered a 35% decrease in less than 1 month of operation. The bulls came back only when the index found 2016 values at 2180 points. Even with the rapid recovery, buyers face strong demand from bears at the 61.8% barrier of Fibonacci retracements, close to 3000 points. A new pessimistic wave could bring the price down quickly to the 38.2% Fibonacci mark, close to 2600 points.
Several currencies suffered from the decapitalization of the market.
From the beginning of 2020, the AUDUSD pair recorded a decrease of almost 22% in mid-March. It ended up gaining space in the following months and recovered part of the low.
The Canadian dollar jumped from its base by 1.30000 to 1.46000 in a few weeks. There was more than 13% increase in the USDCAD pair price.
The pound reached its lowest value in decades at the impressive 1.14000 mark, after a sharp drop of almost 14% in just 7 days.
EURUSD registered a movement of extreme volatility. The bulls soared the pair by almost 7% to the 1.15000 mark. But the entry of selling pressure in this region, dropped the price by another 7% for the 1.06500 line.