World markets crater as coronavirus fears overwhelm central bank emergency measures

Herbert Lash and Marc Jones, Reuters

Posted at Mar 17 2020 07:03 AM

A price screen display is seen above the floor of the New York Stock Exchange (NYSE) shortly as coronavirus disease (COVID-19) cases in the city of New York rise, in New York, US, March 16, 2020. Lucas Jackson, Reuters

NEW YORK/LONDON -- Markets reeled on Monday, with stocks on Wall Street and the price of Brent crude tumbling more than 10 percent, as the Federal Reserve's second emergency rate cut in as many weeks failed to calm fears of a coronavirus-induced recession.

Volatility gauges known as fear indexes spiked, with the Euro STOXX 50 in Europe surging almost 28 percent to an all-time high while the CBOE Market Volatility index soared 44 percent to a record close as stocks plunged further into bear territory.

The sell-off gathered speed at the close on Wall Street, with S&P 500 falling 12 percent, the Nasdaq a bit more and the Dow industrials down almost 13 percent on the day.

Some $2.69 trillion in market value was wiped from the S&P 500 as it suffered its third-largest percentage decline. Over the past 18 days the benchmark index has lost $8.28 trillion.

Even traditional safe havens cratered as fearful investors decided cash is king.

Platinum dived nearly 27 percent to its weakest level since 2002, while gold fell more than 5 percent as investors unloaded precious metals in exchange for cash as not enough buyers sparked illiquidity, especially in the US Treasury market.

The S&P 500 plunged 8 percent at the open to trigger an automatic 15-minute trading halt on the 3 main US stock indexes, marking the third emergency pause on Wall Street in six days. US stocks furthered their decline after trading resumed.

Investors worried that the Fed action, joined by central banks in Japan, Australia, New Zealand and elsewhere, may be insufficient for companies facing a sharp slide in demand. The moves were reminiscent of the sweeping steps taken more than a decade ago to staunch a meltdown of the global financial system.

Lower rates and increased asset purchases by the Fed will help ease tight credit markets, but the US government needs to do more to address the impact of the coronavirus, said David Joy, chief market strategist at Ameriprise Financial in Boston.

"The Fed did what it could; I'm not so quick to blame the Fed," Joy said. "Investors are looking around hoping, praying, that there will be a big fiscal package yet to come from Washington - but getting nervous that it might not."

The New York Fed said it would offer an additional $500 billion in support to overnight lending markets, introducing the latest round of essentially unlimited loans meant to keep cash flowing through increasingly tight credit markets.

The US Senate is under pressure to pass stimulus spending after the House of Representatives last week approved a multibillion-dollar bill.

US President Donald Trump issued new guidelines to help fight the coronavirus, including a recommendation that people avoid social gatherings of more than 10 people, discretionary travel, and going to bars, restaurants and food courts.

Trump, in remarks just before markets closed, said the new guidelines from his coronavirus task force applied for 15 days and were meant to slow the spread of the virus.

Finance ministers in the euro zone said the bloc so far has deployed a fiscal boost worth 1% of its gross domestic product to help the economy withstand the pandemic and pledged to do more if needed.

Rate-sensitive US financial stocks plunged 14 percent, leading declines among the major S&P sectors. Energy stocks tracked a 10 percent slump in oil prices, while technology stocks also slid 13.9 percent. Apple Inc, Inc and Microsoft Corp together lost nearly $300 billion in market value.

MSCI's gauge of stocks across the globe shed 9.14 percent and the pan-European STOXX 600 index lost 4.86 percent as stock markets pared initial deeper losses in Europe. Markets in France and Spain led the decline as the two countries joined Italy in enforcing a national lockdown.

The benchmark European index has now lost more than a third of its value since hitting a record high in mid-February, while the benchmark S&P 500 and Nasdaq composite are down about 27 percent.

On Wall Street, the Dow Jones Industrial Average fell 2,997.1 points, or 12.93 percent, to 20,188.52. The S&P 500 lost 324.89 points, or 11.98 percent, to 2,386.13 and the Nasdaq Composite dropped 970.28 points, or 12.32 percent, to 6,904.59.

Almost nothing was left unscathed. Oil, already slammed by a Saudi-instigated price war, slid to less than $30 a barrel to lows last seen in early 2016.

Oil futures for West Texas Intermediate, the US benchmark, fell $3.03 to settle at $28.70 a barrel, while Brent crude futures fell $3.80 to settle at $30.05 a barrel.

There were moves in Europe to curb short-selling of stocks as bond markets weighed the risk to vulnerable countries, as well as the impact of a fiscal spending splurge on safe-haven debt.

Benchmark 10-year Treasury notes last rose 66/32 in price to yield 0.745 percent.

The Fed's emergency 100-basis-point rate cut on Sunday was matched by the renewal of its quantitative easing program to increase cash in markets and more cheap US dollar funding to ease a ruinous logjam in global lending markets.

There was further policy easing on Monday from the Bank of Japan in the form of a pledge to ramp up purchases of exchange-traded funds and other risky assets.

New Zealand's central bank cut rates 75 basis points to 0.25 percent, while the Reserve Bank of Australia pumped more money into its financial system. South Korea and Kuwait both lowered rates, while Russia and Germany were throwing together multi-billion dollar anti-crisis funds.

MSCI's index of Asia-Pacific shares outside Japan tumbled 5.2 percent to lows not seen since early 2017, while the Nikkei fell 2.5 percent as the BoJ's easing steps failed to reassure markets.

US and Chinese data underscored just how much economic damage the disease can cause, with official numbers in China showing the worst drops in activity on record. Industrial output plunged 13.5 percent and retail sales 20.5 percent.

Manufacturing activity in New York state also plunged in March by the most on record to its lowest level since 2009, offering an early glimpse of the coronavirus' damaging impact on the US economy.

In Asia, Shanghai blue chips fell 4.3 percent overnight even as China's central bank surprised with a fresh round of liquidity injections to the financial system. Hong Kong's Hang Seng index tumbled 4 percent.

The safe-haven Japanese yen jumped as concerns about the outbreak sent investors fleeing higher-risk assets.

The dollar index rose 0.176 percent, with the euro up 0.63 percent to $1.1175.

The Japanese yen strengthened 1.91 percent versus the greenback at 105.92 per dollar.

U.S. gold futures settled 2 percent lower at $1,486.5 an ounce.