The spread of the coronavirus rattled global financial markets, sending U.S. stocks to their worst week since the financial crisis more than a decade ago. Demand spiked for safe assets from Treasuries to the yen.
The S&P 500 plunged 11 per cent in the five days and the Dow Jones Industrial Average careened to the lowest since June, wiping out almost US$3 trillion in value from American equities. Treausires surged, pushing yields on the 10- and 30-year notes to record lows during the period. Oil plunged toward US$45 a barrel in its biggest weekly rout since 2008.
“Investors are selling stocks first and asking questions later,” Keith Lerner, SunTrust’s chief market strategist, wrote in a note. “We are seeing signs of pure liquidation. ‘Get me out at any cost’ seems to be the prevailing mood. There is little doubt the coronavirus will continue to weigh on the global economy, and the U.S. will not be immune. There is much we do not know. However, it is also premature to suggest the base case for the U.S. economy is recession.”
Canada’s largest stock index flirted with correction territory after plunging for a sixth-straight day, capping off its worst week since the global financial crisis of 2008.
The S&P/TSX composite index was down as much as 821 points Friday and closed down 454.39 points at 16,263.05.
Treasury yields plunged to all-time lows, with the two-year sinking 15 basis points to 0.90 per cent. Crude hit US$45 a barrel, while gold tumbled the most intraday since June 2013. European shares sank to the lowest since August.
Battered bulls got a boost when Federal Reserve Chairman Jerome Powell said the central bank is monitoring the virus and will act as appropriate, adding that the “fundamentals of the economy remain strong.” Bank of America strategists now expect the Fed to cut rates by 50 basis points at its March meeting. White House Economic Adivser Larry Kudlow suggested investors “buy the dip.”
Banks led the sell-off, with JPMorgan sinking 4 per cent, as travel restrictions took hold and trading floors scrambled for contingency plans if offices are required to close. Airlines tumbled after Lufthansa curbed short-haul flights and United pared back travel in Asia.
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U.S. equity markets shuddered as the World Health Organization raised its global risk level for the virus and a White House official suggested some schools could close. More major companies warned that disruptions could upend sales and profit forecasts. Germany said it will intensify border checks and Switzerland banned large events, leading to the Geneva car show being canceled. Iran and South Korea revealed more infections while the first cases appeared in Mexico and Nigeria, Africa’s most populous country.
Downgrades to the global outlook keep rolling in and money markets now see three Federal Reserve interest-rate cuts this year. Bank of America predicted that the global economy will see its weakest year since the financial crisis as the virus damages demand in China and beyond.
“Asset prices diverged significantly from growth in the past year, in part because of central bank policy, but also because passive investment’s main signal is price action,” reckons James McCormick, global head of desk strategy at NatWest Markets. “The COVID-19 escalation runs a real risk of virtuous cycle turning to a vicious one. Either way, given where growth estimates are heading for the next few months, I’d expect more downside.”
These are the main moves in markets:
- The S&P 500 Index fell 0.8% as of 4 p.m. New York time.
- The Nasdaq 100 Index rose 0.3%.
- The Dow slid 1.4%.
- The Stoxx Europe 600 Index decreased 3.5%.
- Germany’s DAX Index slid 3.9%.
- The MSCI Asia Pacific Index dropped 2.6 per cent.
- The Bloomberg Dollar Spot Index rose 0.2 per cent.
- The euro fell less than 0.1% to $1.10.
- The British pound dipped 1% to $1.2760.
- The Japanese yen strengthened 1.28 per cent to 108.20 per dollar.
- The yield on 10-year Treasuries declined nine basis points to 1.17 per cent.
- The yield on two-year Treasuries decreased 13 basis points to 0.93 per cent.
- Germany’s 10-year yield decreased five basis points to -0.60 per cent.
- Britain’s 10-year yield dipped four basis points to 0.434 per cent.
- West Texas Intermediate crude sank 5 per cent to US$44.73 a barrel.
- Gold futures decreased 3.4 per cent to US$1,586 an ounce.