Since arriving in office in January 2017, Donald Trump often has cited the upward trajectory as a measure of his economic achievements.
As the 2020 presidential election looms, he may feel a little concerned.
His ‘America First’ handling of the Covid-19 crisis is terrifying commerce and financial markets.
While there may be good public health reasons for limiting flights from Continental Europe, his bungled handling of the announcement – and failure to consult with European allies – was a punch in the solar plexus for financial markets.
Trump’s ‘America First’ handling of the Covid-19 crisis is terrifying commerce and financial markets
He managed to turn the retreat from shares into a stampede, damaging investors on both sides of the Atlantic.
Share prices in London and across Europe tanked an initial 7 per cent and were 10 per cent down at the close. The S&P 500 plummeted by 9.5 per cent and circuit breakers were triggered for the second time in a week.
The US rout this week now represents the worst setback since the Lehman collapse and banking crisis of 2008 that foretold the Great Recession.
The Federal Reserve, having cut interest rates by half a percentage point at the start of the month, has now stepped into the market with a bond buying spree.
It is not just share prices that Trump savaged. Oil markets are badly troubled as a result of the stand-off between Russia and Saudi Arabia.
Brent crude tumbled a further 6.4 per cent to $33.50 a barrel after Trump’s flight plan. This is another self-inflicted wound. Another source of pride for Trump has been American energy self-sufficiency.
The US oil surpluses have largely been built on the fracking revolution in West Texas, which in turn has been pioneered by highly leveraged wildcatters.
As equity prices of these speculative drillers have plunged, the ratio of debt to equity has soared. The lower the oil price, the less the income for the fracking firms and more likely that there could be bankruptcies.
The draught from the oil market has badly unsettled the UK’s marginal drillers. Tullow was down 31.3 per cent in latest trading and is now a penny stock.
Premier Oil is off more than 45 per cent. Motorists buying at Morrison may be seeing the benefit in price at the pumps – but pension funds and equity ISAs certainly are not.
The converse of the flight from shares and oil is the rush into US Treasuries, an enduring act of faith in the United States and the dollar, not the president.
It has been disclosed by the US Centers for Disease Control that coronavirus is in 44 of the 50 states. Trump is insistent that he would not be declaring a state of emergency or halting domestic air travel.
Watch for overnight tweets and the next foul-up.
Continental drift
Christine Lagarde played a blinder at the International Monetary Fund and is credited with helping make Brussels and the European Central Bank see sense when it came to rescuing Greece.
Running the European Central Bank, as the Covid-19 crisis wreaks havoc, is proving harder.
When her predecessor Mario Draghi pledged to do ‘what it takes’ to save the euro, it was the turning point for the single currency crisis. When Lagarde made the same pledge as president of the ECB, no one seemed to believe her.
There was no big bazooka in the shape of a further rate cut, just a pea shooter in terms of easing capital requirements so banks can lend more, and a limited €120bn extra of bond buying.
Across 27 economies, including an enfeebled Italy, that did nothing to instil confidence.
Lagarde suggested there should be follow-through budget measures. Brussels sets the rules for fiscal policy, which could be eased, but it is up to individual governments to take the initiative. As was seen in 2008 and the subsequent euro crisis in 2010, it takes a very long time to deliver.
The precedents are not encouraging.
Frozen fan zones
Big sports events are being cancelled as coronavirus does its stuff. Indian Wells tennis has gone. So has NBA basketball, the Australian Grand Prix, and La Liga soccer in Spain and Major League Soccer in the US.
In Italy, Serie A is hanging on behind closed doors and the Tokyo Olympics under scrutiny. That is bad for sports, the athletes and supporters.
But it is even worse for global entertainment empires, including Sky (now owned by Comcast), ITV et al who count on sport to bring in the advertisers.
That’s serious.
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