The year 2020 will stand as the time when the coronavirus crisis almost broke the financial markets.
Investors watched with growing horror in March as a stock sell-off turned into a liquidity crisis where even the ultra-safe US government bond market was straining to match buyers and sellers — challenging the most basic assumptions of risk and threatening the underpinnings of the financial system.
Central banks and governments initially struggled to stop the rot, before providing unprecedented programmes of bond-buying and rate cuts that laid the ground for a record-breaking “everything rally”.
Here is the story of a tumultuous year, through the words of those seeing the events unfold first-hand.
January 23: Chinese stocks fall on the last day of trading before the lunar bank holiday, after Wuhan, the city at the centre of the coronavirus outbreak, is put under lockdown measures. When markets reopen on February 3, the benchmark CSI 300 has its worst day since mid-2015.
February 24: Global stocks have their worst day in two years after Italy’s move to quarantine towns brings home that the virus has spread to Europe.
March 3: The US Federal Reserve makes a 0.5 percentage point cut to its policy rate, hoping to reassure a market panicked by the spreading virus. It has the opposite effect, as investors queried the scale of the move and the effectiveness of monetary easing to deal with a demand shock.
March 9: Brent crude falls a quarter, having dropped 30 per cent at the opening of Asia trading, after Saudi Arabia responds to Russia’s refusal to take barrels off the market by starting a price war.
March 12 was a bruising day for markets. President Donald Trump’s ban on most European flights, announced the previous evening, spooked stock investors, and the Fed’s liquidity injection did not manage to restore the mood. Wall Street has its worst day since the 1987 crash.
Strategists struggle to work out what is going on in what is typically considered the world’s deepest and most liquid market, US government bonds, which had begun to seize up on March 11. “In a crisis like this, all the weak spots get revealed,” William Dudley, former head of the New York branch of the Fed, later said.
And Christine Lagarde — fresh to the top job at the European Central Bank — triggered a sovereign bond sell-off when she told investors “we are not here to close spreads”, referring to the additional interest rates paid by weaker eurozone borrowers.
March 15: The Fed delivers a surprise Sunday cut to near-zero in its main policy rate. Investors question whether that means monetary policy had reached its limit.
March 18: Supposedly safe government bonds endure periods of indiscriminate selling, as global volatility worsens. Oil prices hit their lowest in almost 17 years and sterling touches its weakest point since the 1980s. “Hell is coming,” said hedge fund manager Bill Ackman in a CNBC interview, warning of the devastating impact of the virus and calling for an immediate lockdown.
“While this is a public health crisis first, there is a real and looming potential for it to spill over into a full-on credit and liquidity crisis,” wrote Alan Waxman, Sixth Street Partners, typifying the mood on March 19.
March 23: The Fed pledges to buy government bonds in unlimited amounts, and to buy corporate debt for the first time, in a dramatic intervention that would calm markets and mark the bottom for US stocks. This came just days after the ECB promised to buy €750bn more bonds with a “no limits” commitment to the eurozone.
April 1: Coronavirus-hit cruiser operator Carnival has to pay double-digit interest rates for its debt lifeline but manages to get the deal away, signalling that the Fed’s grand interventions had restored sentiment.
April 13: The Opec cartel of oil-producing nations sign a historic deal to curb their oil output and end a bruising price war — under pressure from the US president, concerned to protect America’s shale sector.
April 21: The deal was not enough to offset the coronavirus hit to demand. US crude oil prices crash below zero for the first time ever, after the oil glut left buyers with nowhere to put their oil. “It is probably the most volatile and challenging market we’ve ever seen,” said Douglas King of RCMA Capital, reflecting on the turmoil.
April 30: US stocks cap their biggest monthly rally since 1987, up almost 13 per cent, as a “fear of missing out” drags buyers back into the market despite the unfolding crisis. Oil prices also rebound.
June 8: The blue-chip S&P 500 stock index turns positive for the year, having risen more than 40 per cent from its March low.
July 21: Investors hail a €750bn Covid-19 recovery fund that will bring greater financial integration to the EU and make Brussels a significant borrower in bond markets.
July 27: The precious metal hits a record high, driven by coronavirus worries and yields on other assets being driven lower by central bank intervention.
August 18: The S&P 500 finally exceeds its previous record high, set in February. It marks a contrast with the US dollar, which has tumbled to a two-year low, as interest rate cuts and concerns over the American economy deter investors from dollar assets.
September 9: Tech stocks suffer a late-summer correction, with hot stock Tesla losing a fifth of its value in a single day. Market nerves had grown over valuations stoked by big bets made in the options market by Japanese group SoftBank.
October 20: The EU receives the biggest ever order book in global bond markets for the first tranche of its coronavirus-related borrowing. Investors put in bids of €233bn for the €17bn of debt on offer.
November 9: BioNTech/Pfizer’s announcement that its Covid-19 vaccine is more than 90 per cent effective adds to market optimism over Joe Biden’s victory in the US presidential election. Similar announcements from other drug groups would lead global stock markets to their best monthly performance in decades, with economically sensitive stocks leading the way.
December 10: A rollercoaster year was topped off by fresh record highs for tech stocks and a flurry of IPOs that drew parallels with the dotcom boom and bust of two decades earlier. Holiday rental company Airbnb’s shares more than doubled on their first day of trading, after Doordash’s first-day pop earlier in the week.
“We’ve all been around markets for enough time to know this doesn’t end well,” said Jim Tierney of AllianceBernstein.