All global investors got from U.S. President Donald Trump’s coronavirus package were a shock travel ban on Europe and a flashing signal to sell, and none of the large-scale tax breaks or medical tests for Americans they’d been expecting.
The deep disappointment with Trump’s much-touted plan, which he unveiled late on Wednesday, spurred massive falls in global stock markets. U.S. stock index futures plunged nearly 5%, almost hitting their circuit breakers for the second time in a week.
The highlights of what Trump described as “the most aggressive and comprehensive effort to confront a foreign virus in modern history,” were a three-month tax holiday for individuals and small businesses and low-interest loans for affected companies.
That fell way short of market expectations for relief from an outbreak that has spread to 122 countries, infected more than 126,000 people, sowed fears of a world recession and wiped about $6 trillion off the U.S. stock market.
Even expectations that Trump would try to fix the delays in getting U.S. virus testing up to speed were dashed.
“I am just left speechless for Trump to say this is the most comprehensive plan,” said Rob Carnell, chief Asia-Pacific economist at ING in Singapore.
“Without all the additional testing and tracing and containment measures that certainly aren’t taking place in the United States, it’s just a PR stunt.”
Investors were also stunned at what to them was a tardy plan to restrict travellers from Europe for 30 days, and then left confused when he clarified that cargo would not be banned.
“Travel restrictions equal slower global economic activity, so if you need any more coaxing to sell, sell, sell, sell after a massively negative signal from overnight trading in U.S. markets it just fell in your lap,” said Stephen Innes, global chief markets strategist at Sydney-based brokerage Axicorp.
ANZ’s head of Asia research, Khoon Goh said that travel ban would multiply the adverse impact on businesses. “This is something that markets had not factored in, it’s a huge near-term economic cost.”
NOT SO SWEET
While markets are accustomed to Trump’s flip-flops and policy bluster, Wednesday’s speech was a stunning failure in its attempt to put a floor under tumbling stock markets ahead of his Nov. 3 re-election bid.
Trump, whose campaign could be shaped by how well he responds to the crisis, stopped short of declaring a national emergency.
One measure Trump wants — an elimination of the “payroll tax” on workers’ earnings that would free up cash for businesses and consumers – is unlikely to get bipartisan support.
“There is no immediate fiscal support actually coming,” said Matthew Sherwood, head of global investment strategy at fund manager Perpetual in Sydney. “It will be heavily debated, it’s an election year. They are not going to make his job easy, the Democrats.”
Michael McCarthy, chief strategist for CMC Markets in Sydney, said markets were clearly signalling to the White House that the measures were too little, too late.
“While the travel ban from Europe is certainly dramatic and will help with the health aspects, it is clearly damaging economically,” he said. “Given the very limited nature of low interest loans to small businesses and potential tax deferrals for individuals and businesses, there isn’t enough here for markets to hang their hat on.”
Importantly, everything Trump said on Wednesday fell short of what markets expected from an economic superpower coming late to the virus battle.
“The U.S. is playing catch-up as fast as it can and that’s where we are. The president destroyed trust and the world doesn’t believe him,” said David Kotok, chairman and chief investment officer at Cumberland Advisors in Sarasota Florida.