Stocks suffer, Treasury yields plumb new depths as virus spreads
Asian shares and U.S. stock futures fell on Friday following another Wall Street rout as disruptions to global business from the coronavirus beyond China worsened, stoking fears of a prolonged world economic slowdown.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 1.3%. Australian shares were down 1.64%, while Japan’s Nikkei stock index .N225 slid 2.29%.
Yields on 10-year U.S. Treasuries fell to a record low and two-year yields fell to the lowest in more than three years as investors increased bets that the Federal Reserve will follow this week’s surprise 50 basis point rate cut with further easing to prevent corporate bond spreads from widening further.
Tumbling yields hammered the dollar, which traded near a six-month low versus the yen and close to a two-year trough against the Swiss franc.
Oil prices fell due to worries that non-OPEC oil producers might not agree to output cuts even though global energy demand is weakening.
The spread of a new coronavirus has accelerated so much in Europe, Britain and North America that investors who once played down the virus are now re-assessing the risks, which means more volatility in financial markets.
“Optimism overseas is fading and now people are really starting to question just how bad things will get,” said Takuya Kanda, general manager of research at Gaitame.com Research Institute in Tokyo.
“For some investors, Treasuries are the only place to park their money, but for others buying the dollar or stocks is out of the question.”
U.S. stock futures ESc1 erased early gains to trade down 0.12% in Asia on Friday.
The S&P 500 .SPX tumbled 3.39% on Thursday. The benchmark S&P 500 ended down more than 10% from its Feb. 19 closing high, after last week logging its biggest weekly percentage decline since October 2008.
Officials and companies in Britain, France, Italy, and the United States are struggling to deal with a steady rise in coronavirus infections that have in some cases triggered corporate defaults, office evacuations, and panic buying of daily necessities.
The flu-like virus emerged late last year in the central Chinese city of Wuhan and has since spread to more than 80 countries and has claimed more than 3,000 lives. New infections have slowed in China, but there are concerns other countries are not prepared.
Shares in China CSI300. fell 0.96%, while stocks in Hong Kong .HIS, another city hard hit by the virus, fell 1.89%.
Travel restrictions and factory closings aimed at curbing the spread of the virus are expected to put downward pressure on global economic growth.
Many investors await the release of U.S. non-farm payrolls later on Friday. Recent U.S. economic data has been encouraging, but concerns about the epidemic are likely to overshadow any signs of a strong labour market.
The Federal Reserve and Bank of Canada both responded to the economic threats by cutting interest rates by 50 basis points this week.
The yield on benchmark 10-year Treasury notes US10YT=RR fell to a record low of 0.8980% in Asia Friday. The two-year yield US2YT=RR fell to 0.5420%, the lowest since July 2016.
Minneapolis Federal Reserve President Neel Kashkari said late on Thursday the Fed could cut rates further if the impact of the coronavirus is worse than expected.
Money markets were pricing in another 25 basis-point-cut from the current 1% to 1.25% range at the next Fed meeting on March 18-19 and a 50-basis-point cut by April.
Sterling GBP=D3 traded near a one-week high versus the dollar.
The euro EUR=EBS held steady at $1.1225. Markets in the euro zone are pricing in a 93% chance that the European Central Bank will cut its deposit rate, now minus 0.50%, by 10 basis points next week.
U.S. crude CLc1 fell 0.37% to $45.73 a barrel. Brent crude LCOc1 fell 0.32% to $49.83 per barrel. Worries about a decline in global demand caused by the coronavirus outbreak and uncertainty about production cuts hurt crude prices.