Another dramatic flight to safety in financial markets

FRANKFURT (dpa-AFX) – The worsening corona crisis on Thursday again triggered a dramatic flight to safety in financial markets. The tense situation has been exacerbated by US travel restrictions on European citizens and the drastic measures in Italy. Stock markets and oil prices fell. US and German government bonds and safe currencies were sought.

After the recent losses, US President Donald Trump’s announcement Thursday evening to close US borders to foreigners from Europe has created new pressure. “We will be suspending all travel from Europe to the United States for the next 30 days,” Trump said in an address to the nation. Travelers from Great Britain are excluded. The World Health Organization classifies the virus epidemic, which is spreading rapidly around the world, as a pandemic.

The announcements hit the stock markets particularly hard. Stock markets have collapsed in Asia. In Germany, the Dax fell below 10,000 points for the first time since 2016. The morning losses were around seven percent.

Oil prices have also come under pressure. The price of a barrel of North Sea Brent and the American variety WTI has fallen by nearly two dollars. Travel restrictions are expected to further dampen demand for crude oil. The price war between Russia and Saudi Arabia is also a burden. Commodity currencies like the Russian ruble were under pressure.

German government bonds in particular benefited from the panic in the markets. The prices of US, German and UK government bonds rose particularly sharply and yields fell dramatically in some cases. However, yields remained slightly above their recently reached record lows.

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A completely different picture emerged for Italian government bonds. The yield on Italian ten-year bonds rose 0.10 percentage points to 1.272%. To contain the corona pandemic, Italy has again tightened its lockdown measures. Most stores across the country have been closed since Thursday morning. Only supermarkets and pharmacies remain open. The measures are likely to strain the already struggling Italian economy.

On the foreign exchange market, the Japanese yen and the Swiss franc, considered safe, profited from the worsening situation. The euro rate has, however, fallen.

Meanwhile, the European Central Bank (ECB) is under great pressure. She will announce her decisions in the early afternoon. “However, their instruments are not designed for selective use in particularly affected regions, industries and companies,” commented Landesbank Hessen-Thüringen (Helaba). “Nonetheless, ECB boss Christine Lagarde has questioned the full range of monetary policy instruments.”

The price of gold has stabilized after recent losses. In recent days, the price of a troy ounce (around 31.1 grams) was still under pressure. Experts have explained these losses by forced sales that were made to compensate for other losses.

The Institute for the World Economy (IfW) expects a “serious economic crisis” in Germany due to the Corona crisis. For the current year, researchers have lowered their economic forecasts and forecast the German economy to contract by 0.1%. The German economy will fall into recession in the first half of the year. Researchers expect a similar development for the euro area.

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