New collapses in oil and markets, stop trading in the US and growing interest in real estate

Stopping trading due to a collapse in the US



This week in the United States stopped trading on stock exchanges after stock indices fell by 7%. The Dow Jones index fell by 7.82% to 19576.75 points, the NASDAQ index - by 6.3% to 6872.71 points, the S&P 500 index - by 6.97% to 2352.8 points. After the closing and resumption of trading, the indices showed multidirectional dynamics. However, in the very first minutes of the trading session, the market turned down and the decline of all indices intensified.



The US Federal Reserve (analogous to the Central Bank of Russia) launched the third $3.8 trillion emergency lending program in two days to combat the consequences of the coronavirus. However, these new incentives have not been able to stop panic sales in global financial markets.

What does it mean

Numerous financial crises have taught stock exchanges to deal with panic. If investors rush to get rid of some assets, trading is stopped for a few minutes. During this time, traders have time to take a breath and gather their thoughts. Often the panic ends and trading continues as before.



In the US, the fall in indices after the measures taken became a little calmer, but did not stop. It is due to global causes - because of the epidemic, the entire global economy suffers, the supply chain is destroyed. Factories in China do not produce goods due to quarantine, their American owners do not make a profit, the share price of companies naturally decreases. The same is happening in Russia - stock indices are falling. But here the reason is the fall in oil prices - due to underfunding of the budget and a decrease in the profits of oil companies, there is simply less money in the country, and they “leak” from the stock market into more reliable assets: bonds and precious metals.



The most acceptable strategy is to buy stocks of those companies that will grow and / or will bring good dividends in the long run. After buying, it is better not to watch quotes for several months: there is a risk of panicking and selling everything at a local minimum. Another option is to invest in defensive assets. For example, bonds with a fixed income and a reliable issuer (like the Ministry of Finance or large Russian companies).

Interest in real estate doubled



After the collapse of the markets and the ruble in million-plus cities in Russia, interest in buying real estate has grown sharply. The number of search queries for the purchase of housing in new buildings increased by 35%, in the secondary market - by 44%, TASS reports with reference to CIAN.

What does it mean

In Russia, real estate is considered to be a reliable investment. Now, when it is difficult to make a profit from securities, and the rates on bank deposits are low, an apartment seems like a safe investment. Adds interest to cheap mortgages and the hope of receiving passive income from renting out housing.



However, an apartment is not always a profitable investment. Do not forget about transaction costs: a real estate transaction comes with high costs for realtors and notaries. In addition, the belief in real estate as an ever-growing asset at one time was one of the causes of the US mortgage crisis in 2007 and the subsequent global financial crisis in 2008.



Also, do not forget that an increase in demand provokes an increase in prices. In Russia in 2014-2015 developers raised prices by up to 10% during the week amid the general hype. Buyers then had to resell apartments at a discount due to inflated prices.

300 billion to help businesses affected by the coronavirus



The government and the Central Bank have jointly developed a set of measures that should mitigate the impact of the coronavirus epidemic on the Russian economy. The program is estimated at 300 billion rubles.



First of all, these funds will be directed to help companies in the aviation and tourism sectors, which have suffered the most due to anti-viral measures. But the fund's money can also be used to help other affected industries. Travel and aviation companies will receive a tax deferment. They will also be provided with state guarantees for loan restructuring.

What does it mean

The tourism sector has been hit hardest by the epidemic. Airlines have nowhere to fly, tour operators and travel agencies have no one to sell tours: communication between countries is severely limited, and in some places it is completely closed. It is not known how long the epidemic will last, which means that the summer season is under threat.



Now most tour operators offer to rebook canceled tours to a later time or to other destinations. Given the decline in prices due to falling demand, many tourists agree that a good hotel in the UAE is now worth as much as a mediocre one in Turkey in "peacetime". Without support, a massive bankruptcy of tour operators is possible, for which ATOR (Association of Tour Operators of Russia, which insures package tours from unscrupulous and bankrupt tour operators) will have to pay. Since the situation with the coronavirus goes far beyond the normal activities of the tourism industry, ATOR's money may not be enough.

The Central Bank kept the key rate at 6%



Board of Directors of Centrob

The Bank at its meeting on March 20 kept its key rate at 6%. Earlier, the Bank of Russia systematically reduced it.



Events in February and March developed with a significant deviation from the baseline forecast due to the coronavirus, the regulator states. The weakening of the ruble, according to the Central Bank, is a temporary factor, but it can provoke an increase in inflation above the target (planned inflation rate) of 4% in 2020.

What does it mean

The central banks of all countries, with the help of the key rate, control the cost of money in the economy and can influence it.



The decisions of the Central Bank are influenced by multidirectional factors. On the one hand, economic growth in recent months may noticeably weaken due to the coronavirus and the collapse of oil, the ruble and stock indices provoked by it. If the situation starts to get out of control, the Central Bank may again start raising the rate, as it did in 2014. This will lead to an increase in interest rates on loans, including mortgages, but will increase the profitability of bank deposits.



On the other hand, before the coronavirus epidemic, the rate was systematically reduced in order to keep inflation around 4% and reduce the cost of loans, including mortgages. The Central Bank allowed that in 2020 inflation will exceed the target of 4% and return to it in 2021. However, the uncertainty is high: no one knows when the epidemic will end and which economies it will affect the most, what will happen to oil and markets. This is the first time such a situation has occurred in world history. Therefore, the decision of the Central Bank is the refusal to influence the economy for some time. When it will be possible to make at least some forecasts, the rate will begin to change. In what direction - now it is impossible to say.


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