Shares across Europe and in New York extended losses, and US government bond yields plunged anew as the confirmed number of global coronavirus cases approached 102,000 and as the outbreak accelerated within the US.
Benchmark oil suffered its biggest one-day loss in more than 11 years after Russia balked at OPEC’s proposed steep production cuts to stabilise prices. Gold edged higher; its advance was checked by profit taking.
ASX futures down 93 points or 1.5% to 6113 near 8.15am AEDT
- AUD +0.3% to 66.35 US cents
- On Wall St: Dow -1% S&P 500 -1.7% Nasdaq -1.9%
- In New York, BHP -3.1% Rio -1.7% Atlassian -5.2%
- In Europe: Stoxx 50 -3.9% FTSE -3.6% CAC -3.4% DAX -4.1%
- Spot gold +0.1% to $US1673.82 an ounce at 4.27pm New York time
- Brent crude -9% to $US45.47 a barrel
- Iron ore -2.6% to $US90.19 a tonne
- 10-year yield: US 0.76% Australia 0.67% Germany -0.71%
“Where we go from here will undoubtedly depend on the
spread of the virus,” TD Securities economist Admir Kolaj said. “The recent developments build the case that the US will not escape unscathed.”
According to a tally by researchers at Johns Hopkins University on by 8pm Eastern time in the US on Friday, 14 Americans have died from the virus, with 13 of those near Seattle. It listed 311 total confirmed cases across the US.
The latest data from the US Centers for Disease Control and Protection shows cases across 19 different American states. The majority of the cases are in Washington, California and New York.
A cruise ship with more than 3500 on board is being held off California’s coast; 21 of 46 people tested so far tested positive for the virus. More than 2700 people are under some form of quarantine in New York city, the New York Times reported. South by Southwest, an annual technology, film, and music festival in Austin, Texas was cancelled.
“The US is at risk of an exponential breakout moment with coronavirus awareness and shutdown in economic activity over the coming days and weeks,” Saxo Bank’s FX strategy head John Hardy said.
European shares closed the week sharply lower. The FTSE 100 fell 3.6%, France’s CAC 40 slid 4.1% and Germany’s DAX shed 3.4%.
US stocks surged late to significantly pare earlier losses. The Dow closed down 257 points or 0.98%; it rallied 600 points in the final hour. JPMorgan, Exxon and Goldman Sachs paced the losses.
JPMorgan’s 5.2% drop reflected in part news that CEO Jamie Dimon had undergone emergency heart surgery as well as plunging bond yields.
The S&P 500 fell for the tenth time in the past 12 sessions. The benchmark index ended the week more than 12% below its record close on February 19.
The Cboe Volatility Index rose 5.9% on the day to 41.94. It touched a high of 54.39 during the session.
US bonds surge
The yield on the US 10-year note ended 15 basis points lower at 0.76%, according to Bloomberg data. It earlier plunged to a record low of 0.66%. It has fallen 88 basis points in the last month. Yields move inversely to prices.
Yields on both the 10-year and 30-year securities were poised to record their biggest one-day drops since October 2011 during the depths of the euro zone sovereign debt crisis.
“The collapse in Treasury yields is historic, but this last decline was pretty easy as bond traders drove the 10-year down to match economists’ expectations that the Fed will deliver another 50-basis point cut at the March 18th meeting,” Edward Moya, senior market strategist, at OANDA in New York told Reuters.
Futures traders bet the Federal Reserve will slash US interest rates to near zero by April.
Capital Economics’ Andrew Hunter said there’s a chance that the US Federal Reserve will cut its key interest rate range before its March 17-18 policymeeting.
“The 273,000 gain in non-farm payrolls in February, together with the cumulative 87,000 upward revision to gains in the preceding two months, confirms that the US economy started 2020 in very good shape,” Mr Hunter said. “This data clearly precedes the coronavirus impact, however.
“With the 10-year Treasury yield slumping to a new record low and stock markets under pressure again on Friday, it is questionable whether the Fed can wait until its scheduled meeting to deliver the next rate cut,” Mr Hunter also said.
“I like to say the markets are efficient but not necessarily rational but I haven’t in the past argued that the Fed decision-making has a large element of irrationality in it as well,” Mr Naroff said. “Unfortunately, you cannot rule that out right now. After this week, who knows what they will do and when they will do it.”
Mr Naroff said his “best guess is that once the effects of the coronavirus start hitting the economic data, and I assume they will, the Fed members will have to conclude that they need more rate cuts.
“Why they think that going from one per cent to zero will do anything other than send the message that the sky is falling is beyond me, but as I just noted, there seems to be an element of irrationality (or panic) in the Fed’s thinking right now.”
US growth outlook hit
Bank of Montreal is now forecasting a 0.8% contraction in the June quarter in the US, which would mark the first quarterly decline since early 2014.
“For now, we are assuming (as a placeholder) that the turning point for the outbreak will occur by May,” BMO senior economist Sal Guatieri said. “If so, real GDP growth could rebound above 2½% on average in the second half of the year.
“We also raised our 2021 growth forecast a couple of tenths to 2.0% in response to the Fed’s rate cuts (both the 50-point chop this week and another 75 bps expected), as well as some fiscal policy support (such as this week’s bill to allocate $US8.3 billion to contain the spread of the virus, which is likely just a down payment in the fight),” Mr Guatieri also said.
Oil plummets, gold steadies
US crude futures settled down more than 10%, the largest one-day percentage loss since 2014. More than 4.58 million US front-month crude contracts changed hands this week, the busiest week ever for that contract.
“Gold saw sharp liquidations to end the week, as money managers sought to sell their winners to raise liquidity for their losers amid an equity market correction, triggering a significant pullback in the yellow metal,” said TD Securities.
The main focus for local investors will be the pending stimulus package from the Morrison government.
NAB economist Kaixin Owyong said: “The package will be aimed at counteracting the economic impact of COVID-19, where the RBA and Treasury both estimate a hit to growth in Q1 of at least 0.5pp. Prime Minister Morrison has emphasised the measures will focus on: (1) stopping job losses; (2) boosting cash flow; and (3) supporting investment.”
On Wednesday, the UK government will unveil its budget.
Tuesday’s NAB February survey will provide an early read on how the virus is impacting local business conditions and confidence.
Overseas, the European Central Bank holds a policy meeting on Thursday.
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