FOR the past few weeks, global markets have been roiled by fears of the economic impact brought about by Covid-19. Taking a first glimpse of its impact, we have seen China's retail sales plunging 20.5 per cent year on year during January and February. Industrial output and fixed asset investments also fared badly, declining 13.5 per cent and 24.5 per cent respectively when compared to the previous year. With cases in the United States and Europe on the rise and several cities undergoing lockdown, we may potentially see a similar scale of economic impact on other major economies. The current situation has put a drag on the Straits Times Index (STI) which thrives on a trade-dependent economy. Disruptions to global supply chains will continue to weigh down business sentiments and travel restrictions will take a toll on tourism, which contributes to around 4 per cent of Singapore's GDP.

To mitigate the impact from Covid-19, the US Federal Reserve has imposed a dramatic cut in the Fed Funds Rate to 0-0.25 per cent and the resumption of quantitative easing through the purchase of US$700 billion in bonds. Rather than calming markets, the drastic approach appears to highlight to investors the severity of the situation and led to greater panic in the market. Despite several fiscal stimulus measures aimed at keeping financial markets stable, global markets remain spooked by the escalating fallout from the Covid-19 outbreak. The rate cut undertaken by the Federal Reserve will put pressure on banks' net interest margins. With the local banks taking up more than 30 per cent weightage in the STI, these main constituents may lead the STI lower.

Aside, the oil price war between Russia and Saudi Arabia has led to depressed oil prices. This may disrupt the oil industry worldwide, causing oil firms to face a double whammy from both a demand side shock and excess supply flooding the market.