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Market functioning restored, but risks remain

Strains in the financial markets have generally eased due to policymakers’ decisive action and equity markets have rebounded on hopes that the spread of the coronavirus is slowing. Of course, asset prices have not recouped all their losses given that it will take some time for the economy to get back to where it was. Corporate bond spreads are still at levels not seen since the Global Financial Crisis as investors anticipate a spike in corporate defaults. And a sustained turnaround in equity markets will hinge not only on the pandemic being brought under control at a global level, but also economies being restarted successfully. This has been highlighted by the renewed flare-up in the markets today, which has seen equity prices fall by 3%, the pound drop back to $1.23 again and the oil price drop below $20 per barrel.

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