Tags: Coronavirus | Financial Markets | el-erian | world | recession | stocks

El-Erian: World to Plunge Into Recession as Stocks Plunge 30% From Highs


By    |   Thursday, 12 March 2020 09:11 AM

Economist Mohamed El-Erian warns that the U.S. stock market will drop as much as 30% from last month’s highs as global economies go into coronavirus-driven recessions.

“We are going into a global recession. We are going to see a spread of economic sudden stops,” the former Pimco CEO told CNBC.

“The trouble with economic sudden stops is it’s not easy to restart an economy. You’ve got to get people to re-engage. You’ve got to coordinate the restart. The economic damage is going to last,” the Newsmax Finance Insider said.

But El-Erian said it’s a different story for financial markets, which are “going to react much faster” than the economy.

“We are putting so much liquidity into these markets that when the green light flashes, and it will flash at some point, we are going to have such a snap back,” he said. “The financial markets are going to lead the real economy,” he said.

“We’re going to come back. We’re going to turn around, but it is going to be a difficult journey,” El-Erian said.

He said the market chart would look like a “U” or an “L.”

However, global stocks plunged into a bear market and oil slumped on Thursday after U.S. President Donald Trump banned travel from Europe to stem the spread of coronavirus, threatening more disruption to the world economy, Reuters reported.

With the pandemic wreaking havoc on the daily life of millions, investors were also disappointed by the lack of broad measures in Trump's plan to fight the virus, prompting traders to bet on further aggressive easing by the U.S. Federal Reserve.

"He (Trump) did not announce any new concrete measures such as a large-scale payroll tax cut to buffer the economy against the impending coronavirus slowdown," said Jeffrey Halley, senior market analyst at OANDA.

"That has probably disappointed markets more than anything."

The speech clearly underwhelmed investors, who have been waiting for a “major” economic plan the president promised on Monday and has yet to put to paper.

Futures on the benchmark S&P 500 index steadily deteriorated as details of Trump’s plan leaked out over the dinnertime hours in New York. Down about 0.8% when his remarks began, the loss extended to 2% by the time the president finished speaking and got worse from there.

By Thursday morning, the sell-off sweeping global equities gathered pace, with U.S. futures once again tumbling by the most allowed and a gauge of world stocks on course to enter a bear market.

“Investors are looking for bold government stimulus. So far we haven’t seen a lot of detail and there isn’t much confidence it will happen quick enough,” said Nathan Thooft, Manulife Investment Management’s head of global asset allocation.

Trump’s most ambitious proposals include a suspension of U.S. payroll taxes, paid sick leave for hourly workers and $50 billion in additional loans for small businesses. Both Democrats and Republicans have expressed reticence about a payroll tax cut, and about three hours after his address, House Democrats released their own plan to fight economic fallout from the virus that served to highlight how modest Trump’s offering sounded.

The Democratic plan includes free coronavirus testing, paid emergency leave for workers, food security assistance and other measures to help ordinary Americans weather the outbreak.

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Economist Mohamed El-Erian warns that the U.S. stock market will drop as much as 30% from last month’s highs as global economies go into coronavirus-driven recessions.
el-erian, world, recession, stocks
Thursday, 12 March 2020 09:11 AM
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