TOKYO (REUTERS, BLOOMBERG) - Global share markets headed for the worst week since the darkest days of the world financial crisis in 2008 as investors ditched risky assets on fears the coronavirus would become a pandemic and trigger a global recession.
European stock markets extended their virus-fuelled plunge at the start of trading on Friday (Feb 28), with leading indices crashing more than 3 per cent, deeper into correction terrirory.
Frankfurt's DAX 30 index dived 4.3 per cent, the Paris CAC 40 slumped 3.9 per cent and Milan's FTSE MIB shed 3.3 per cent. Outside the eurozone, London's FTSE 100 index slumped 3.7 per cent.
In Asia, Tokyo's benchmark Nikkei average tumbled 3.7 per cent by the close. The index was down 9.6 per cent for the week, the biggest in four years.
The benchmark Shanghai Composite Index also lost 3.7 per cent while the Hang Seng Index closed down 2.4 per cent. Sydney's S&P/ASX 200 index and Seoul's Kospi index both tumbled 3.3 per cent.
In Singapore, the Straits Times Index closes down 100.62 points or 3.2 per cent to 3,011.08.
CNBC reported that seven Asian stock indexes - in Japan, China, Hong Kong, South Korea, Singapore, Australia and Thailand - are in correction territory defined as a 10 per cent drop from their 52-week high.
As of 2:35am ET, Dow Jones Industrial Average futures were 244 points lower, indicating an implied opening loss of more than 435 points.
The Dow plummeted nearly 1,200 points on Thursday - its biggest one-day point drop ever - as worries over a possible coronavirus pandemic sent investors fleeing.
Hopes that the epidemic that started in China would be over in a few months and economic activity would return to normal have been shattered, as new infections reported around the world now surpass those in China.
"The coronavirus now looks like a pandemic. Markets can cope even if there is big risk as long as we can see the end of the tunnel," said Mr Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "But at the moment, no one can tell how long this will last and how severe it will get."
The worsening global threat from the virus prompted investors to rapidly step up bets the US Federal Reserve would need to cut interest rates as soon as next month to support economic growth.
"We don't even need to wait for economic data to see how badly the economy is being hit. You can tell that the sales of airlines and hotels are already falling by a half or something like that," said Mr Tomoaki Shishido, senior economist at Nomura Securities.
"It is fair to say the impact of the coronavirus will be clearly much bigger than the US-China trade war. So the Fed does not have a reason to take a wait-and-see stance next month," he said.
The MSCI all country world index fell 3.3 per cent on Thursday to bring its losses so far this week to 8.8 per cent, on course for its biggest weekly decline since a 9.8 per cent plunge in November 2008.
Wall Street shares led the rout as the S&P 500 fell 4.42 per cent, its largest percentage drop since August 2011.
It has lost 12 per cent since hitting a record close on Feb 19, marking its fastest correction ever in just six trading days while the Dow Jones Industrial Average fell 1,190.95 points, its biggest points drop ever.
US crude futures fell 2.7 per cent to $45.85 per barrel, having lost 14.1 per cent so far on the week, which would be the deepest fall in nearly nine years.
Investors flocked to the safety of high-grade bonds. US yields plunged with the benchmark 10-year notes yield hitting a record low of 1.241 per cent. It last stood at 1.247 per cent.
That is well below the three-month bill yield of 1.436 per cent , deepening the so-called inversion of the yield curve. Historically an inverted yield curve is one of the most reliable leading indicators of a US recession.
Expectations the Fed will cut interest rates to cushion the blow are rising in money markets. Analysts say Fed funds futures are now pricing in more than a 50 per cent chance of a 25 basis point cut at the central bank's March 17-18 meeting.
As investors rushed to safe assets, gold stood at US$1,646.4 near a seven-year high ofUS $1,688.9 hit earlier this month.
On the other hand, junk bond ETF prices fell to multi-month lows on fears of an increase in bankruptcies among highly leveraged companies, with the energy sector hit hard by falls in oil prices.
In currency markets, the yen rose 0.5 per cent to a near one-month high of 109.00 to the US dollar.
The euro stood at US$1.0993, having jumped over 1 per cent in the previous session, the biggest gain in more than two years as investors wound back bets against the currency versus the dollar.
The risk-sensitive Australian dollar lost 0.5 per cent to an 11-year trough of US$0.6533 while the New Zealand dollar shed 0.8 per cent to US$0.6251, near a four-year low of $0.6204 touched in October.