LONDON: Global stock markets tumbled and government bonds rallied on Friday as disruptions to business from the spreading coronavirus epidemic worsened, stoking fears of a prolonged economic slowdown.
European shares opened sharply lower, with travel stocks bearing the brunt. The pan-European STOXX 600 index was down 3.5 per cent by midday in London, reaching its lowest level in more than six months Germany’s DAX slid 3.5 per cent, Britain’s FTSE 100 fell 3.2 per cent and France’s CAC 40 fell 3.7 per cent. The MSCI All-Country World Index, which tracks shares across 49 countries, was down 0.84 per cent.
In the US, investors also looked past data showing a robust pace of hiring in February, underscoring the panic around the potential end of the longest US economic expansion on record.
At 10:18am. ET, the Dow Jones Industrial Average was down 686.74 points, or 2.63 per cent, at 25,434.54, while the S&P 500 was down 82.16 points, or 2.72 per cent, at 2,941.78. The Nasdaq Composite was down 211.56 points, or 2.42 per cent, at 8,527.04.
After their worst weekly performance since the 2008 financial crisis, global stocks measured by the MSCI index are up 1.7 per cent this week, as policymakers provided stimulus to combat the economic effects of the virus.
Yields on US. Treasuries fell to record lows and Treasury futures jumped as investors increased bets the Federal Reserve will follow this week’s surprise rate cut with further easing.
The yield on benchmark 10-year Treasury notes fell to a record low of 0.6950 per cent on Friday. The two-year equivalent fell to 0.4510 per cent.
The Fed made an emergency interest rate cut of 50 basis points earlier this week. The Bank of Canada and the Reserve Bank of Australia also cut rates, with investors expecting other major central banks to follow suit soon.
Officials and companies in Britain, France, Italy and the United States are struggling to deal with a steady rise in virus cases that have in some cases triggered corporate defaults, office evacuations, and panic buying of daily necessities.
“The interplay of virus containment fears and stimulus measures means that in the near term we expect market volatility to persist,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Money markets are pricing in another 25 basis-point-cut from the current 1 per cent to 1.25 per cent range at the next Fed meeting on March 18-19 and a 50-basis-point cut by April. Minneapolis Federal Reserve President Neel Kashkari said late on Thursday the Fed could cut rates further if needed.
Germany’s benchmark 10-year Bund yield fell to a six-month low, within striking distance of last year’s record lows.
The flu-like virus emerged late last year in central China and has since spread to more than 80 countries. More than 3,000 people have died. Travel restrictions and factory closings aimed at curbing the spread of the virus are expected to pressure global growth.
Many investors were awaiting the release of US non-farm payrolls later on Friday. Recent US economic data have been encouraging, but concerns about coronavirus are likely to overshadow any signs of a strong labour market.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.05 per cent. Japan’s Nikkei stock index sank 2.94 per cent. Australian shares were down 2.44 per cent.
Shares in China fell 1.22 per cent. Stocks in Hong Kong, another city hard hit by the virus, fell 2.12 per cent.
In currencies, rapidly falling yields hammered the dollar The index that measures the dollar’s strength against a basket of other currencies, was down 0.7 per cent.
Against the Japanese yen, the dollar fell to a six-month low and was last at 105.29 yen. It sank to a two-year trough of 0.9347 Swiss franc.
“The driver is the equity markets and the collapse in US
bond yields this week,” said Kenneth Broux, FX strategist at Societe Generale.
“It’s been a knee-jerk reaction. What we have now is a reversal simply on the declining US equities and the compressing differential.
The euro gained 0.8 per cent to trade at $1.1328. Markets in the Eurozone are pricing in a 93 per cent chance that the European Central Bank will cut its deposit rate, now minus 0.50 per cent, by 10 basis points next week.
Oil prices slid more than 4 per cent to their lowest since July 2017 after Reuters reported that Russia would not agree to steeper cuts in oil output to support prices.
By 1153 GMT, Brent crude LCOc1 was down $2.06, or 4.1 per cent, to $47.93 a barrel. US. West Texas Intermediate was down $1.94, or 4.2 per cent, to $43.96.