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The global markets barely budge as helicopter-money measures achieve lift-off

March 19, 2020, 10:23 AM UTC

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Good morning, everyone. For a while yesterday, it was as if the past three-or-so years had never happened. The markets had wiped out all the gains of the Trump presidency.

The markets are a bit calmer today. Let’s check in on them now.

Markets update

We begin in Asia where there’s some really good news about Covid-19 coming out of China: Hubei province, the epicenter of the coronavirus outbreak, has reported zero new infections in the past 24 hours. That detail, however, is failing to lift Asian markets.

In Europe, where the number of confirmed coronavirus cases and deaths has now surpassed that of China, the markets are highly volatile, but climbing. Investors are cheering yesterday’s move by the European Central Bank to launch an unprecedented 750 billion euro ($820 billion) bond-buying program. In a break with the past, the central bank will now buy non-financial commercial paper and Greek debt, a move that’s begun closing the gap on sovereign spreads and should keep liquidity flowing for companies facing a financial crunch. And they are legion. Just look at airlines.

Lufthansa announced on Thursday it’s grounding all but 63 planes, joining Delta Air Lines and Qantas in dramatically cutting back operations as lockdown measures expand across the world.

***

The U.S. futures looks set to open in the red again after yesterday’s mega sell-off. Investors have been bailing on stocks despite Washington kicking into high gear on stimulus measures. Trump’s top economic advisor, Larry Kudlow, even floated the idea of the government buying equities as the price tag on emergency measures balloons to $1.3 trillion.

Elsewhere, king dollar conquers everything in its path as investors hoard cash. The British pound has fallen to a 35-year-low against the dollar, down to a buck-15. Crude, meanwhile, has bounced off lows last plumbed in the early aughts. And gold is rebounding.

***

If you’re like me, you just don’t want to look at your portfolio these days. It’s been a brutal month, one for the record books.

In morning trade yesterday, the Dow Jones sunk below 20,000 and kept going down. For a while, it was trading at a level last seen in January, 2017 when Barack Obama was president. The Dow futures are down, as I type, more than 400 points.

***

Remember when?

I’ve trotted out a version of this chart before. I just keep updating it to remind myself how far we’ve fallen, and how quickly.

It wasn’t all that long ago—try last month—when the markets were hitting all-time highs. The Dow has now shed nearly 10,000 points since February 12 as investors sell just about everything but dollars.

We’re in a tough spot. Historic stimulus measures are needed to keep the cogs of the global economy moving. But the markets are asking: How exactly are we going to pay for all this?

Postscript

In Rome, a flat with a terrazzo (terrace) is key. I’ve squeezed onto many a narrow Roman balcony to dine with friends, clinging wine glasses as the sun sets on another scorcher of a day. The setting can turn even the humblest home-cooked meal into a decadent Italian affair.

Our little terrazzo is in use year-round. During the lockdown my appreciation for the terrazzo climbs daily. It’s where I go to get some air and marvel at the stillness of the city. It’s also where I encounter neighbors doing the same.

As you’d imagine, the conversations last a bit longer these days. They get a bit more personal too. People are concerned about their already tenuous jobs. They worry about their elderly parents stranded in other towns. One neighbor told me about his brother, a journalist, who is in a hospital in Milan. Yep, the coronavirus. They ask me what the Americans are doing. They’re concerned other countries aren’t doing enough. They fear that what we’re seeing on local TV news reports—overflowing hospitals and coffins stacked in rows; the army has been called in to remove the dead from the northern city of Bergamo—will happen elsewhere.

This daily terrace-to-terrace chatter is a throw back to an era before WhatsApp and FaceTime. It’s become irreplaceable again, bringing Romans together. As my neighbor was telling me about his ailing brother, his kids were hanging a banner over the railings that read, “Andrà tutto bene,” which roughly translates to, “everything will be all right.” It’s become a kind of rallying cry here.

Italian flags and banners that read “it will be alright” hang from balconies and windows around Rome. Original photography: Bernhard Warner

If I step out onto my balcony I can see dozens of such signs reminding me we’re in this all together.

Andrà tutto bene.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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Today's reads

Better than 2008. Despite the speed of the stock market’s 30% collapse since mid-February, Nobel prize-winning economist Robert Shiller thinks we probably aren’t heading for another Great Depression or Great Recession. “This doesn't seem to be another 1929 or 2008,” he tells Fortune’s Shawn Tully. “This time the bad news comes from something outside the economy. This time it's a virus story that turned into a stock market story.”

Time to buy? Stocks may be nearing “buy” territory, according to a yardstick used by asset manager Peter Kraus called the “equity risk premium”, or ERP. “Determining the new ERP caused by fear in the market gives you the best point estimate for where people should say, ‘The market is cheap,’” Kraus, co-founder of Aperture Investors, told Fortune. He adds that with coronavirus fears prompting the 12% fall in the S&P on “Mad Monday” (a.k.a. March 16), “we're almost there.”

FX meltdown. Liquidity evaporated in the $6.6 trillion-a-day currency market as few traders wanted to take positions against a surging dollar ahead of a potential coronavirus lockdown in London, the biggest trading hub for foreign exchange. The pound sank as much as 5% on Wednesday to its lowest since 1985, and Norway’s krone plummeted more than 13% to a record low, moves akin to so-called flash crashes, Bloomberg reports.

Market candy

$26 trillion. That’s how big the fiscal response may need to be to counter the economic impact of the coronavirus pandemic, according to one of Australia’s top-performing fund managers. Hamish Douglass, chief investment officer of Magellan Financial Group Ltd, estimates the stimulus governments may need to inject at up to 20-30% of global GDP, Bloomberg reports.