The Taoiseach’s address to the nation on Saint Patrick’s night set a pretty perfect tone for where we find ourselves at the moment. It was factual, measured and pulled no punches. The people of Ireland have been left in no doubt about the gravity of the situation, and we can certainly rest assured that the Irish government acted more quickly and more aggressively that our neighbours on either side of us. The facts are that we are certainly in a calm before the storm; significant economic damage will be done; it will likely take years to fully recover; and the crisis still has some way to run. It is difficult to disagree with the prognosis provided by the Taoiseach and indeed things are moving so quickly at the moment, 24 hours can bring dramatic changes.
Financial markets are continuing to go ballistic and we are seeing some pretty dramatic market movements from hour to hour. Market participants are as confused about the implications of the unprecedented crisis that is evolving as the rest of us ordinary mortals and hence market movements are proving very dramatic in all asset classes.
Gold prices are soaring, which never comes as a surprise during periods of intense nervousness. Its safe-haven status is coming to the fore once again. Likewise, the safe haven status of the US dollar is being highlighted, as it makes massive gains against currencies such as the sterling and the euro. Sterling is falling out of bed across the board, which says a lot about how the markets are viewing the disastrous handing of COVID-19 by Boris Johnson, and also the disaster that Brexit represents, particularly given the continued insistence on exiting the transition mechanism on 31st December next. Despite assertions by Dominic Raab, it seems inconceivable that the UK will exit the transition mechanism at the end of the year, and before the end of June we are likely to see the UK seeking a one or two-year extension to the transition mechanism. Or at least that is what logic would suggest, but the behaviour of Boris over the past few weeks would suggest that logic is in short supply between his ears. The images of thousands of commuters in packed London Tube stations on Wednesday really says it all as does the decision not to close schools until Friday this week.
On bond markets, the moves of recent weeks have been similarly dramatic. 10-year bond yields in countries such as Italy and Greece have spiked sharply, as they should. A proper and proportionate response from the European Central Bank (ECB) on the monetary policy front, and from EU governments on the fiscal policy front, which would necessitate a binning of the EU’s fiscal rules, is now essential to avoid an all-out crisis in the Euro Zone, akin to or worse that seen during the Greek crisis a few years back. Countries such as Italy and Greece who have massive debt levels and badly struggling economies are particularly vulnerable at the moment. 10-year bond yields in Ireland are also rising, albeit from negative levels a couple of weeks ago that could not possibly be justified. Thankfully, in an emergency meeting on Wednesday night, the ECB announced a new package of bond buying totalling €750 billion by the end of the year. This is a step in the right direction, but more will be needed.
Equity markets are also in freefall at the moment and one can only surmise that there is quite a distance to go before ‘bottom pickers’ enter the fray. It would take a brave investor to step into markets that have no visibility at the moment.
Whatever way one looks at it, the global economic implications of what is happening look pretty catastrophic. The global economy fell off a cliff in 2008 and it has definitely gone over the cliff edge again over the past couple of weeks and unfortunately, the beach looks a long way down, with some very craggy looking rocks in the way.
For the Irish economy, thousands of jobs are currently being lost and economic activity is effectively grinding to a halt, with the exception of public services, and the very important food-supply chain. I hope at the end of all of this, whenever that comes, Irish people will once again realise the importance of domestically provided food that is produced to the highest safety standards possible. Food safety and security are just so important, but unfortunately it takes a crisis such as this to hammer that message home.