Axiome March update 2020

In our last report we highlighted the exceptionally strong returns in 2019, with markets registering gains of 25% or more.   The good run continued into January 2020, but cracks started in February as concerns mounted that Covid-19 was spreading to other parts of the world.

Central banks started to cut interest rates, which initially supported markets rallying further.  But from around the 20^th February a very large and rapid sell-off began as the true scale of the global pandemic became apparent, and governments started to implement social distance measures and close borders.

The sell-off from late February was also accompanied by extreme volatility and various stresses in financial market conditions (including reduced liquidity, longer trade settlement time frames, and increased credit spreads on bonds).

In response, central banks were quick to deploy the ‘toolkit’ they developed in the GFC in 2008/9.  Interest rates were cut to zero in countries where they were still above this level (notably, the US, Australia and New Zealand).  Quantitative easing programs were also re-started or kicked into life, including in New Zealand for the first time.