Nope, it's all turning sour all over again. There is no joy for investors anywhere - the US stock index dropped 5 per cent immediately after markets opened Wednesday. Image Credit: AFP

New York: Financial markets continued to spasm Wednesday, with US stocks plunging toward levels that halt trading, as the economic fallout from the pandemic outpaces the massive response from governments and central banks.

The S&P 500 tumbled more than 5 per cent, threatening to trip a circuit breaker that pauses action for 15 minutes. The index had rallied 6 per cent Tuesday after the Trump administration considered up to $1 trillion in spending and the Federal Reserve dusted off crisis-era programs to stabilize financial markets.

“The missing fundamental ingredient for a sustainable recovery in risk appetite is some evidence that the growth of global COVID-19 infection rates is peaking,” said Paul O’Connor, head of multi-asset at Janus Henderson Investors. “Clearly, we are not there yet.”

Pumping up the stimulus

Governments have pledged or are considering about $1.14 trillion in fiscal support to offset the economic shock from the pandemic, with the Trump administration moving toward a big package, but the virus continues to spread at a pace that is forcing massive shutdowns across the globe.

The planned US stimulus could amount to $1.2 trillion, aiming to stave off the worst impact of a crisis that already looks set to plunge many of the world’s economies into recession. Meantime, the Federal Reserve reintroduced additional crisis-era tools to stabilize financial markets. Those responses came after stresses appeared in the short-term funding markets.

“I don’t think we’re out of the woods yet in terms of liquidity,” Mark Konyn, chief investment officer at AIA Group in Hong Kong, said. “It’s a question of when the fiscal measures will have the most efficacy.”

European bonds came in for a bashing. Oil dropped to an 18-year low. The dollar strengthened a seventh straight day, while the pound hit its lowest level against the greenback since 1985.

Europe’s moving in sync

In Germany, Angela Merkel said the government will not rule out joint European Union debt issuance to help contain the impact.