Global stock markets remain highly volatile with a large selloff in the US setting the tone for yet more weakness in markets. A warning from Goldman about the end of the bull market has not helped sentiment.
Wall Street is down for the 12th time in 15 days as US 10s slipped to 0.685 per cent. The Dow shipped more than 800 points. We are still in the middle of horrendous volatility which means the trend is still to the downside. For stocks to find a bottom we need to see bonds stabilise and we would like to see the Vix start to come back under 20. For this to happen we can still have down moves in stocks, just smaller moves around the flatline. We need to see 200-pt days for a while, not 800-point days. And for this to happen we need to see better news on coronavirus – still some way off you would think – and a proper response from the US and Europe. The UK has taught Washington and Berlin a lesson in how to respond to this crisis. Markets want more of this dual fiscal and monetary response but few are able to do it the way Britain has – the US legislature and executive are totally at odds, while Europe has no fiscal union.
On the Budget, Rishi Sunak sounded the death knell for austerity. To combat the impact of the coronavirus, the government is delivering £30bn of fiscal stimulus – a whopping 1.5 per cent of GDP. This is large-level stimulus, it’s massive. We don’t know how it will turn out, but you cannot accuse the government of sitting on its hands. More broadly, the taps are open for the rest of the parliament as the chancellor pledged £175bn in new spending over 5yrs - growth will be 0.5 percentage points higher than without. This extra spending should mean 2021 growth will be 1.8 per cent vs 1.6 per cent previously forecast. It’s the largest sustained fiscal boost for 30 years – this marks a seismic shift and the cover of an 80-seat majority, Brexit and the coronavirus has enabled to happen.