Dow closes in bear market, ASX to plunge

Australian shares are set to plunge again at the open as concerns about the global spread of the coronavirus continue to heighten. The WHO declared the virus a pandemic. The Dow’s 11-year bull run came to a decisive end.

ASX futures were down 200 points or 3.5% to 5528 near 7am AEDT. Wall Street cratered again. At the close in New York, the Dow was 1465 points or 5.9% lower, confirming that it has entered a bear market.

The Dow was dragged lower by a 18.2% tumble in Boeing, after Bloomberg reported the company is planning to draw down the full amount of a $US13.825 billion loan negotiated last month as early as Friday.

Other major decliners: Dow Inc -10.9%, United Technologies -9.9%, Amex -7.8%. All 30 of the Dow’s components ended lower.

The yield on the US 10-year note lifted 7 basis points to 0.87%.

The S&P 500 slid 4.9% – it’s now 19.2% from its record high – and the Nasdaq lost 4.7% – it’s also 19.2% from its record high.

Mohamed El-Erian said he expects the sell-off from February record highs to reach as much as 30 per cent. Canaccord Genuity’s Tony Dwyer said equities still appear in the “panic phase” of the start of the bottoming process.

Both the French and US presidents are expected to address their respective nations later today. Also later today, the Morrison government is set to unveil a package to bolster the economy.

Earlier the UK government proposed a budget to boost its economy and help offset some of the cost of the virus spread. The Bank of England cut its key interest rate by 50 basis points to 0.25%.

Expectations are rising that the Federal Reserve will slash its key rate again, perhaps to zero per cent and perhaps before policymakers meet for a regularly scheduled meeting next week.

The New York Fed said beginning tomorrow and continuing through April 13, its open market trading desk will offer at least $US175 billion in daily overnight repo operations – up from a $US100 billion to $US150 range just two days ago – and at least $US45 billion in two-week term repo operations twice per week over this period.

In addition, the desk will also offer three one-month term repo operations, with the first operation occurring tomorrow. The amount offered for each of these three operations will be at least $US50 billion.

A key reason for the sell-off today was concern that Donald Trump was failing to take the virus seriously enough.

“Trump, still shaking hands, lamely says the virus ‘will go away’, and that ‘a lot of good things are going to happen’, said AGF’s Greg Valliere. “He has some solid people around him, but Trump himself [appears] so woefully inadequate to deal with this crisis that his re-election is now in doubt.”

In comments to reporters, President Trump said he would speak to the nation at 9pm Washington time (12pm AEDT), on economics and healthcare. If the US gets rid of the virus problem fast, “we won’t need stimulus”, he also said.

According to Johns Hopkins, there are now 1135 confirmed coronavirus cases in the US, and 32 deaths. More than 40 US states now have confirmed cases, the Washington Post reported.

A “dearth of testing” means that the number of reported cases in the US almost certainly understates reality, Amherst Pierpont chief economist Stephen Stanley said in a note this week, adding that “in the short run, the number of reported cases is going to rise, perhaps at an accelerating rate”.

Mr Trump’s Robert C. O’Brien put the blame for the virus directly on China, the Post also reported.

“The first thing I want to point out is that this virus did not originate in the United States. It originated in Wuhan, in Hubei province in China. It originated some time ago,” O’Brien said in a speech. “Unfortunately, instead of using best practices, this outbreak in Wuhan was covered up.”

In a Fox Business Network interview Wednesday, the President’s campaign spokeswoman Kayleigh McEnany defended Mr Trump’s decision to continue holding large campaign rallies.

“The President is the best authority on this issue,” Ms McEnany said, according to the Post report on interview.

Ms McEnany also said that there is no need for Mr Trump to stop shaking hands with supporters, arguing that it’s part of the President’s job.

“He’s taking precautions, he’s washing his hands — we’re all doing that, but he’s a man of the people, he talks to the people, he shakes their hands. That’s the nature of the business,” she said.

The attending physician of the US Congress and , Dr Brian Monahan, briefed Senate staff yesterday in a closed-door meeting that he expects anywhere from 70 up to 150 million people in the US to contract coronavirus, NBC News reported. Monahan also told staffers that ultimately, 80 per cent of those who contract the coronavirus will be fine.

JPMorgan’s Michael Feroli said he expects an imminent second emergency rate cut by the . “We see no good reason for the Fed to ‘keep its powder dry’, but instead now believe it will cut the interest on excess reserve (IOER) rate to zero at or before the March 18th meeting.”

Recent experience signals the Fed will move before next Wednesday if they think they’ve seen enough, Mr Feroli also said. “However, one reason the [Fed’s policy] committee may try to hold out until the scheduled meeting is to use the extra time to craft other aspects of the policy response.

“If the Fed goes to zero they can couple that with forward guidance promising patience, perhaps through conditioning rate normalisation on inflation developments. They could also say something about preparedness to use the balance sheet, though given where long-term risk-free interest rates are it is doubtful asset purchases would do much to stimulate the economy.”

Amherst’s Mr Stanley said there’s little the Fed can do at this point. “Unfortunately, my view of the emergency rate cut last Tuesday has been vindicated. The Fed jumped in too soon and was swamped as bad virus news headlines quickly overwhelmed what the Fed had done.”

Mr Stanley said a second 50bps of easing would probably be no more successful at tamping down financial market hysteria as the first move, but the Fed is going to move again. “An increasing proportion of Street pundits are calling for a descent to zero by the April FOMC meeting. If health officials do not get a grip on the problem, the Fed’s actions will be irrelevant. If health officials do get a grip on the problem, the Fed’s actions will be unnecessary. Either way, the Fed will be a non-factor.”

Today’s agenda

Local: Consumer inflation expectations March

Overseas data: Euro zone industrial production January, ECB policy meeting, French president addresses nation; US February PPI final

Market highlights

ASX futures were down 200 points or 3.5% to 5528 near 7am AEDT

  • AUD -0.3% to 64.85 US cents
  • On Wall St near 4pm Dow -5.9% S&P 500 -4.9% Nasdaq -4.7%
  • In New York: BHP -6.1% Rio -6.8% Atlassian -3.7%
  • In Europe: Stoxx 50 -0.2% FTSE -1.4% CAC -0.6% DAX -0.4%
  • Nikkei 225 futures -1.3%
  • Spot gold -0.4% to $US1642.84 an ounce at 2.21pm New York time
  • Brent crude -2.7% to $US36.23 a barrel
  • US oil -2.6% to $US33.46 a barrel
  • Iron ore -2.2% to $US90.05 a tonne
  • LME aluminium -1.3% to $US1675 a tonne
  • LME copper -0.7% to $US5529 a tonne
  • 2-year yield: US 0.57% Australia 0.42%
  • 5-year yield: US 0.70% Australia 0.43%
  • 10-year yield: US 0.87% Australia 0.67% Germany -0.75%

From today’s Financial Review

Chanticleer: Confidence cracks under wall of selling: The virus is temporary and perspective is important. But the damage to markets doesn’t make it easier to see the light at the end of the tunnel.

PM’s $17b splurge to avoid recession: With the ASX falling into a bear market, Scott Morrison will offer billions in economic stimulus, including wage subsidies and $25,000 cash payments to small businesses to save jobs.

Bank sector pain drags shares into bear market: Once again Australian stocks are in bear market territory, and it’s the banks and coronavirus-afflicted tourism stocks that are in the line of fire.

United States

Wall Street stocks plunged on Wednesday, with the Dow confirming a bear market for the first time since the financial crisis.

“There’s just a plethora of bad news today, a growing number of people with the disease, there are different points of view in how stimulus should work, and the market is acting accordingly,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, .

“You call this thing a pandemic and all hell breaks loose.”

A lack of details from the Trump administration regarding its plans for fiscal stimulus, and partisan wrangling in Washington, added further unknowns to the mix.

“Fiscal help may be slow in coming, because of differences between the president and Congress on what form it should take,” added Tuz.

Boeing is planning to draw down the full amount of a $US13.825 billion loan as early as Friday as the planemaker grapples with worldwide travel disruptions from the coronavirus, people familiar with the matter said.

Boeing obtained the loan from a group of banks last month to help it deal with its cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $US7.5 billion of the debt, and is now expected to draw the rest, said the people, asking not to be named discussing private information. Boeing plans to draw the remainder of the loan as a precaution due to market turmoil, one of the people said.

Europe

‘Whatever it takes’: Britain throws kitchen sink at COVID-19 slowdown: The British government unleashed $58 billion in spending and tax relief, immediately after the Bank of England’s surprise 50bp interest rate cut.

European shares ended at a 14-month low on Wednesday after surrendering initial gains made on the Bank of England’s stimulus measures, while weakness in markets across the Atlantic also drove losses.

The benchmark STOXX 600 closed down 0.7%.

British stocks were the worst performers for the day as weakness following a crash in oil prices continued to hound heavyweights BP and Royal Dutch Shell, which closed 3.6% and 2.4% lower, respectively.

Travel and leisure was the worst performing subindex, with British cinema operator Cineworld leading losses after RBC downgraded the stock on risks from the coronavirus.

Airline stocks also plummeted as travel disruptions from the virus saw investors selling en masse.

ended lower, with markets still reeling from a crash in prices following Saudi Arabia’s price war against Russia.

G4S, one of the world’s largest private security firms, tumbled 22.6% to the bottom of the STOXX 600 after posting an annual statutory loss.

Asia

Hong Kong stocks closed lower on Wednesday, tracking Asian markets that fell due to growing uncertainty over global policy efforts to arrest the economic loss from the coronavirus epidemic.

The Hang Seng index fell 0.6% to 25,231.61, while the China Enterprises Index lost 0.8% to 10,070.47.

Leading the retreat, the Hang Seng energy index and IT index dropped 3% and 1.6%, respectively.

Currencies

Bank of America’s view on what the Fed will do next: “Markets are in crisis mode and the economic outlook is deteriorating. In these highly uncertain times clients are asking: ‘what can the Fed do?’ We expect the Fed’s monetary policy easing playbook to be the following: cut to zero, employ forward guidance, ‘twist’ UST holdings, and launch UST & MBS QE. The next step would be to consider even more nontraditional tools.”

Commodities

Lead prices slumped to the lowest since June 2016 and copper also eased.

Benchmark lead on the London Metal Exchange (LME) shed 1.7% to $US1765 a tonne in final open-outcry trading, the weakest since late June 2016.

Copper slipped 0.7% to end at $US5529 a tonne after touching a three-year low of $US5433 on Monday.

The net speculative short position in LME aluminium has climbed to 26% of open interest, very close to this year’s peak of 28%, according to estimates by Marex Spectron.

LME aluminium dropped 1.3% to close at $US1675 a tonne.

US aluminium premiums could jump by 80% to about 25 cents a lb if President Donald Trump boosts US tariffs in a bid to help domestic smelters ahead of the election, analyst Oliver Nugent at Citi said in a note.

Australian sharemarket

ASX plunges into bear market as investors await stimulus: Australian shares closed lower, and have now tipped into a bear market as its decline since its February 20 high topped 20 per cent.

The S&P/ASX 200 index slid 213.7 points, or 3.6 per cent, to 5725.9 on Wednesday, which erased more than all of Tuesday’s climb in equity prices.

The major banks accounted for a large share of the declines. Shares in Commonwealth Bank plummeted 6.6 per cent, National Australia Bank lost 6.3 per cent, ANZ fell 5.5 per cent and Westpac dropped 5.3 per cent.

The share prices of lenders were hammered on expectations of further intervention by the Reserve Bank of Australia to support the economy, which would put further pressure on the big four.

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