The Coronavirus outbreak, which was declared a pandemic last week by the World Health Organization (WHO) and has resulted in around 200,000 worldwide cases, has had profound effects on the world’s major stock exchanges.
From the NYSE in New York to the FTSE 100 in London, stock prices around the world and across sectors have taken a battering as the virus’ continued spread has shattered investor confidence despite the best efforts of the central banks, many of which have slashed interest rates in response to the sell-off.
The bond market has also been hit, with yields falling sharply this week in response to the Covid-19 outbreak.
The interest rate cuts now put many central bank’s base rates close to zero or even negative (in Japan’s case, for example), meaning they have minimal additional monetary policy firepower to deploy in a bid to stimulate demand in these tumultuous times.
An interest rate cut would typically devalue the domestic currency, as the rates are suddenly less attractive to those offered in other countries. Hence, investors exchange their currency and invest in other accounts paying a higher rate of interest.
However, as most central banks have cut interest rates, the cuts shouldn’t affect currency valuations, as it should all even out, though it should be noted different central banks have taken action to vary extents and severity. You can track changes in currency values at Currency-Converter-Calculator.com where changes are updated in real-time.
But it should be noted that some countries which had essentially no room for such monetary measures, such as Japan, are likely to see their currencies devalued against the dollar and euro, potentially impacting trade
Economists have warned that interest rate cuts may not prove to be effective in stimulating consumer and business demand, as the Federal Reserve and other central banks had little room to cut rates, to begin with.
The likes of Russia and Mexico on the other hand, with interest rates at 6 percent and 7 percent respectively, have more scope to gradually cut rates and stimulate aggregate demand, though even these measures are unlikely to prevent a recession if the Covid-19 pandemic drags on through and past the summer (as many politicians and researchers have warned it might.
“With its health system overwhelmed, the Italian government slammed on the brakes, shutting down the retail economy and quarantining the entire country. All stores except supermarkets and pharmacies are closed. People stay home and can enter public places only for necessary purchases or to go to work.”
The United States has two options. If your goal maintains global primacy, you will have to enter a zero-sum geopolitical contest, politically and economically, with China. However, if the goal of the United States is to improve the well-being of the American people, whose social status has deteriorated, it should cooperate with China.
The outcome of COVID-19 and therefore the referee of the drop by oil prices within the Middle East and the Caucasus and Central Asia has been substantial and will intensify.
With three-quarters of nations reporting a minimum of one confirmed case of COVID-19 and a few facing a serious outbreak, the coronavirus pandemic has become the region’s biggest short-term challenge Like much of the rest of the world, the people of these countries were completely shocked by this development, and I would like to express my solidarity with them in facing this unprecedented health crisis.
Many economic problems can be created out of these COVID-19 and natural disasters, and this problem has become inevitable as a result of previous experiences.
How Will the Pandemic Affect World Trade?
In addition to the Covid-19 pandemic affecting world trade via currency fluctuations, it will no doubt also have profound effects on international trade and the global economy via other means, such as the restrictions on travel. Although the restrictions imposed in dozens of countries principally affect passenger flights, they will also impact world trade, as billions of dollars of goods, are imported/exported in the bellies of passenger aircraft.
This doesn’t necessarily mean certain imports won’t be available in certain countries. Still, it does mean businesses and governments will need to reconsider their trade strategies and look to other means to move their freight, perhaps at an additional cost.
These extra costs may or may not be passed on to consumers and businesses. As already seen, the US and many European and Asian governments have announced multi-billion-dollar spending packages to bolster their economies and provide some level of relief to businesses, so it wouldn’t be surprising if governments footed the bill themselves.
A collapse in low demand caused by the hard times is weighing heavily on commodities. Oil prices are heading for their biggest weekly drop in four to five years and have dropped nearly a third from 2024 high, they are also in a bear market. Meanwhile, gold hovered around 6 to a 7-year high.
The COVID-19 impacts could cause problems for the already suffering Chinese economy. In the face of tremendous pressure from the outbreak, China is likely directing its future development strategies and priority toward improving its national economy rather than seeking external investment.
The second situation is a risk situation in which the global spread of infection increases. In this situation, countries where the outbreak is currently limited still face a COVID-19. We have made several expectations for both our base case and risk situation.
Quick Summary
- The Covid-19 pandemic has impacted much of the world, wiping trillions of dollars off stock markets and prompting governments to take action to stimulate demand in these difficult economic times.
- Many central banks have cut interest rates, though some countries, such as Japan, already had negative interest rates before the outbreak, so they had no scope to do so.
- The US and European interest rate cuts may, therefore, devalue the Japanese yen, potentially having a profound impact on trade.
- Aside from currency price changes, the Covid-19 pandemic will also affect world trade in other ways, especially as travel restrictions are likely to affect the import and export of goods around the world.
