Emergency situation where dollar is bought as a safe asset
The stock market fell sharply due to the worldwide expansion of people infected with the new corona virus. On the other hand, the market structure has changed, such as buying dollars.
In the event of market volatility, it was common sense for investors to transfer money to US Treasuries and gold. The usual pattern was that the US Federal Reserve cut interest rates, lowering US interest rates and selling dollars.
However, the dollar’s position in accelerating stock depreciation since late February has clearly changed. The dollar has become a rather “safe asset” and the dollar is running short in the market.
In fact, this was the case during the 2008 financial crisis. However, the stock price depreciation triggered by the spread of the new coronavirus has a very different background from the financial crisis. For this reason, it is not possible to simply compare with that time, but in the case of how to lower the stock price, the reality is that the speed is much faster than at that time.
“GM’s Corona Shock Edition”
The decisive difference between the time of the stock price fall and that time is that financial institutions are not short on funds. Rather, what is worrisome is ordinary companies. Consumption has declined significantly due to restrictions on travel by governments, and this has adversely affected various industries.
The aviation industry has become extremely strict, especially as governments place restrictions on travel both inside and outside the country. In the wake of the Lehman Shock, US auto giant General Motors (GM) broke down, but in analogy with this, some people have ridiculed Boeing the current “Corona shock version of GM.”
Companies that have lost income have run out of funds and are facing a crisis of bankruptcy. However, this shock will be avoided by fiscal dispatches by each country. Needless to say, killing the virus, developing vaccines, and most importantly, preventing the spread of infection is the fundamental solution.