Don’t be fooled by the markets’ turmoil – central banks were right to take decisive action on coronavirus

Economic volatility is inevitable, regardless of intervention from the US Federal Reserve, writes James Moore

The response was rather like that of an obstreperous toddler when presented with an unappealing breakfast. They threw it back in the FED’s face (Rex )

Well that went well. The US Federal Reserve cut interest rates by a half a per cent on Sunday, and unveiled a $700bn (£564bn) stimulus package as part of coordinated action alongside the UK, Japan, Canada, Switzerland and the eurozone.

The response of the markets to this was, however, rather like that of an obstreperous toddler when presented with an unappealing breakfast. They threw it back in the Fed’s face.

With a few notable exceptions – only Ocado’s loo roll was more in demand than its sprightly shares – traders’ screens opened the week to a sea of red. It was very much a case of Black Monday rides again. In response, there was a theory advanced that this was because, rather than in spite, of the Fed’s move.

It held that by acting so decisively, and on a Sunday to boot, America’s central bank sparked (another) panic.

In essence: Oh God, Oh God, Oh God! Just look at what they’ve done. This shows that it really is that bad. There’s a terrible recession on the way. Sell your shares. Sell, sell, sell. Keep the money in cash even though interest rates are basically zero (and they could yet fall further)! Find the nearest rock to hide under!

Thing is, the fall could just as easily have happened without the Sunday cut.

Faced with an escalating pandemic, and an unrelentingly negative news flow, we’re going to have to get used to this sort of volatility. Grim forecasts abound, and yes we will almost certainly see bankruptcies, especially in the travel and tourism sectors, but also in hospitality and among retailers which haven’t got to grip with online shopping.

That being said, the response of the world’s central banks to the impossible dilemma they face has been the right one: act and let the markets work it out for themselves.

Their fleet footed response is quite a contrast to the leaden-footed one during the early stages of the last nasty; the financial crisis, when they spent too much time debating the “moral hazard” of intervening.

Far better to sit back with a cup of tea and repeat the mantra that if you’re investing in shares it should be for the long term

It is something to welcomed, as is the willingness of governments to intervene, although more may be needed there.

For example, from a UK perspective, the £30bn coronavirus package unveiled by chancellor Rishi Sunak in his recent Budget may need to be revisited. This is an evolving situation and not one that’s yet moving in a positive direction. More support may be needed. He’s promised it. He needs to be as good as his word.

For now, individual bailouts are probably less on the cards than are more concessions as regards taxes and duties, perhaps loans. That would seem like the sensible way to proceed. As for investors looking at their holdings in horror – and the FTSE 100 suffered less than did some this time around – their best bet is simply not to look at all.

There’s been much written about panic buying. From the perspective of the world’s stock markets, the problem is panic selling. Now would be a very bad time to join the herd.

It is far better to sit back with a cup of tea and repeat the mantra that if you’re investing in shares it should be for the long term. The markets are going to be buzzing about like drunken wasps that have just binged on over-ripe fruit for some time. Their sting for those inclined to wave their arms about could be powerful, and painful.