European markets fall as investors anticipate long-term damage
After 90 minutes trading, European stocks are sagging.
The FTSE 100 index is now down 4.5%, as the latest stimulus packages announced by world leaders fail to reassure the markets.
Michael Strobaek, chief investment officer at Credit Suisse, suggests investors should keep to the sidelines, saying (via the FT):
“The jury is still out on whether these measures will help stabilise financial markets.”
Investors are also aware that this isn’t a repeat of 2008. It’s actually the reverse – the real economy is hurting the financial sector, not the other way round.
As Kit Juckes of Société Générale wisely explains:
2008 was a crisis born in shadow banking that exposed how over-leveraged the financial sector had become and for many banks, including large ones, over-dependence on short-term funding was a major weakness which, in turn, caused liquidity to dry up. The banks were in the front line of the crisis.
This time (economic) front line in the crisis, is the damage the pandemic is wreaking on companies in exposed sectors and on the economy more widely as the crisis spreads. So while market participants scramble de-leverage, the banks need money to lend to companies whose cashflow situation has changed almost overnight.
That need for funds to flow into the economy isn’t going away any time soon. The result is that while direct financial effects of this crisis might be less acute than in 08, they will continue being felt for a long time.