European and Asian stocks dropped on Wednesday, as government measures to shield economies from the impact of the coronavirus failed to reassure investors.
London’s FTSE 100 fell 3.4 per cent at the open as a new wave of concern over the global economy snuffed out a brief market rally. The losses were spread across Europe, as in Frankfurt the Dax slid 3.5 per cent and In Paris the Cac 40 lost 2.4 per cent.
Futures trading suggested that selling would resume on Wall Street on Wednesday with contracts for the S&P 500 dropping 3.7 per cent, the maximum allowed. The index had rebounded 6 per cent overnight in a volatile US trading session as the Trump administration and US central bank unveiled large support packages.
“The trajectories of Covid-19 are likely being contained in Europe but not in a complacent US and the economic damage is severe,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.
Governments this week have rolled out large-scale support measures in an attempt to cushion the blow from the coronavirus, which has caused an economic standstill in parts of Europe, Asia and the US.
But US Treasury secretary Steven Mnuchin warned late on Tuesday that the pandemic could send US unemployment to as high as 20 per cent if Washington does not roll out further measures to boost the economy.
“The jury is still out on whether these measures will help stabilise financial markets,” said Michael Strobaek, chief investment officer at Credit Suisse, who added that investors should stay on the sidelines.
In volatile trading in Asia-Pacific on Wednesday, Australia’s S&P/ASX 200 slid 4.8 per cent as Scott Morrison, prime minister, warned that the crisis could disrupt daily life in the country for up to six months. Hong Kong’s Hang Seng index fell 4.1 per cent while China’s CSI 300 slipped 2 per cent.
The Japanese yen gained ground as stocks sold off, rising 0.3 per cent to ¥107.3. Still, the yield on the 10-year US Treasury note held ground well above the 1 per cent threshold it had surged past on Tuesday. Yields rise as bond prices fall.
Traders in Tokyo and Hong Kong said they were treating all moves with caution given that correlation across global markets was at its highest in a decade.
“The markets are seeing real signs of government and central bank stimulus and that was always eventually going to get a response. The issue you have, though, is that nobody is taking a long-term view of this market,” said one Tokyo-based trader. “My hedge fund clients are basically turning into day-traders because nobody wants to run a big book overnight.”
Japan’s benchmark Topix index initially rose sharply after data showed the central bank bought a record ¥120bn ($1.1bn) of Japanese equities on Tuesday. But by the closing bell it had gained just 0.2 per cent despite reports that Prime Minister Shinzo Abe planned to form a panel to discuss further support measures to cushion the blow of the virus outbreak.
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2020-03-18 08:12:14Z
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