US stocks pared some of their losses in afternoon trading after the New York Federal Reserve said it would pump more than a trillion dollars into the short-term funding markets.
Stocks crashed in early trading after President Donald Trump banned all travel to and from Europe in an effort to contain coronavirus, with the falls triggering an automatic pause in trading for the second time this week.
Yet in a major step, the NY Fed stepped in just after midday to say it would increase the amount of money it lends in the short-term borrowing markets by more than a trillion dollars.
Banks fund much of their operations by borrowing in short-term repurchasing – or repo – markets in exchange for high-quality collateral such as US government bonds. The NY Fed’s move is aimed at keeping them lending to one another.
The move eased the falls on Wall Street, which had seen the S&P 500 earlier plunge into a bear market – a fall of 20 per cent since recent highs.
The S&P 500 was last down 6.2 per cent, the Dow Jones was also 6.2 per cent lower, and the Nasdaq was down six per cent.
European stocks, however, suffered one of their worst days in history, with the UK’s FTSE 100 plunging to its worst fall since the 1987 stock market crash.
Traders sold off shares after Trump last night announced a month-long ban on travellers from 26 European countries. The policy, which does not include the UK and Ireland, is aimed at slowing the spread of the virus.
The move sent airline shares crashing and raised fears that trade in goods and services could be drastically reduced, although Trump clarified that goods could still travel.
Today, Trump today stood by his move, offering investors little solace when he said he could extend the ban, or he could shorten it.
The frantic selling compounded yesterday’s losses on Wall Street, when the S&P 500 and Nasdaq fell 4.9 per cent and 4.7 per cent respectively and the Dow Jones dropped 5.9 per cent.
US stocks need spending spree
Investors have also been rattled by an apparent lack of economic stimulus from the Trump administration.
Many analysts are predicting a further interest rate cut by the US Federal Reserve following its emergency 50 basis point slash last week.
However, some have pointed to the need for wider spending policies. Trump earlier this week said he would discuss a “very substantial” payroll tax cut to boost the economy, but a measure is yet to materialise.
In the UK chancellor Rishi Sunak yesterday unveiled the country’s biggest spending spree in almost three decades. This included a £30bn package to help mitigate virus fears.
But the Budget announcement did little to calm investor nerves, and the FTSE 100 this morning fell to lows not seen since 2012. A sharp fall in airline stocks has dragged the blue-chip index down more than nine per cent.