After a tumultuous Monday, Dow had a fairly positive Tuesday as the index ended over 1000 points higher. The positivity in the index was largely driven by the proposed stimulus by Donald Trump. He has now asked the Federal Reserve to add another $900 billion of stimulus to help the economy recover from near-zero growth levels. The Dow had already corrected close to 30% from its peak levels and had taken a hit after the economy showed signs of flat growth. Last week, the US Fed had cut rates back to the 2008 lows of 0.00-0.25%, which had been interpreted by markets as an admission of slowdown.
There was no respite for crude oil as the price fell below the $30/bbl mark as the demand shock from the Coronavirus syndrome continued. Normally, in such a situation the supply cuts help to maintain a semblance of stability in the oil markets but now even that does not appear to be likely. After Russia refused to participate in further supply cuts, Saudi Arabia and the OPEC have gone ahead and increased production and also dropped prices sharply (in some cases to as low as $25/bbl). This glut has led to a sharp fall in oil prices. Now oil is very close to the multi-year lows it touched in early 2016.
The Virus casualties continue although the number of people afflicted by the virus appears to be coming under control. As of 17 March, there were close to 8,000 casualties and about 200,000 persons afflicted by the virus. The total death toll in Italy, Spain and Iran has now exceeded the death toll in China making it a truly global pandemic. The death toll in Italy has crossed 2200, the highest after China. While the US has also seen nearly 90 deaths, they have already ordered a virtual shutdown to contain the spread of the virus. However, as shutdowns increase, economists worry of the impact on growth and incomes.
Global economies are bracing up for fighting the Coronavirus impact by opening their coffers. After the US announced a trillion dollar stimulus, UK has announced a stimulus to the tune of £330 billion. Most of these will come in the form of loan guarantees to businesses that are struggling from the impact of the Coronavirus. In addition, the government is also planning to give tax cuts to the tune of £20 billion. Britain had been already reeling under the pressure of BREXIT and the virus syndrome has come at the same time. UK has seen close to 60 casualties from the Coronavirus and is ordering a shutdown.
The new board of Yes Bank, the RBI and the government may be under a severe test when the floodgates of withdrawing money from Yes Bank open up late on Wednesday. As per the statement from SBI, unlimited withdrawals via ATMs and online transfers will be permitted from 6 PM on 18 March. One of the reasons for starting late in the evening is to test waters and avoid any rush at the branches. The bank has clarified that it has already accumulated a reserve of Rs.30,000 crore to handle any withdrawals on that date. While the SBI has assured of continuity of the bank and its own involvement in the management, the real picture will only be clear once the floodgates are actually opened. It could be a real test and we may have to see the response if the pressure is huge.
IT sector in India has not been immune to the crash or defensive any longer. In less than 15 days, the top 3 IT firms in India have lost close to $31 billion as fears of a global slowdown come home to roost. IT firms could face a serious compression in global orders and also execution margins and in some cases they are also expecting payment delays. TCS has seen value erosion to the tune of $21 billion while Infosys has seen value erosion to the tune of $7 billion. Both being heavyweights in the indices have also managed to apply pressure on the markets. IT stocks are quoting at 52-week lows.
