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Trump stimulus backfires

Lachlan Maddock
— 1 minute read

President Donald Trump’s announcement of a $50 billion stimulus package has backfired to spectacular effect, essentially ending an 11-year bull market.

President Trump announced the stimulus as cases of the “horrible infection” crossed 1,200 in the US. 

“I am instructing the small business administration to exercise available authority to provide capital and liquidity to firms affected by the coronavirus,” President Trump said.

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“Effective immediately the SBA (Small Business Administration) will begin providing economic loans in affected states and territories. These low-interest loans will help small businesses overcome temporary economic disruptions, caused by the virus. To this end, I’m asking Congress to increase funding for this program by an additional $50 billion dollars.”

But the simultaneous announcement of a 30-day ban on all travellers from Europe hit markets hard – potentially putting a nail in the coffin of an 11-year bull run – and has been met with criticism from Australia’s financial services sector.  

“The benefits of Trump’s $50 billion stimulus package appear likely to have been squandered by an ill-considered blanket ban on all European travel,” said David Bassanese, chief economist at BetaShares. 

“The latter will only add to market concern that trade and travel restrictions to contain what’s now a pandemic will only succeed in pushing the US economy into recession.”

Mr Bassanese believes that if the US takes a similar approach to China – which quarantined millions of citizens, shutting down large amounts of production capacity – a recession is almost guaranteed, with an ensuing hit to equity prices that could see them dip deeper into bear market territory. 

“With local recession risks growing and uncertainty as to how much damage the coronavirus will inflect on the US economy in particular, share markets have understandably declined from peak levels in recent weeks,” Mr Bassanese said.

“That said, the speed of the decline has been surprising and suggests an element of panic is creeping in.”

 

 

 

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