The shock took place between mid-February and mid-March. This turmoil was felt by markets that were comfortably preparing for a year of mild economic recovery after the 2018-19 slowdown, with equity valuations flirting with all-times highs, and strong bond markets because central banks had recently restarted their QE or equivalent programmes.
This sense of comfort plus some classic disdain for what is happening very far away made European equity markets initially, until the first part of February, almost ignore the epidemic outbreak in China (another kind of flu, or at worst SARS were the usual comments at the time), in other words only a matter for regional concern. Then came the realization that it mattered for the western world, but still there was a poor understanding of how quickly the exponential propagation of a pandemic can overwhelm health systems. Everyone from governments, central banks, markets and even doctors found themselves running literally BEHIND this exponential curve, hence a growing panic, economic lockdown, with massive deflationary consequences, and equity markets went down 25 to 30% in one month, with LT rates collapsing (US rates went down from 1.6% to 0.6% in the same period).
Then policy makers “panicked” as well, in particular the Fed, which of course was a good thing, because USD funding markets were on the verge of dislocation, and also most other central banks, as well as Governments, which came up with very powerful solutions of revenue substitutions for economies that were 75% stopped. And this basically created a bottom, which closed phase 1 of shock.
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