LONDON/SYDNEY (REUTERS) - World shares took their biggest tumble in five weeks on Thursday (June 11) as a sobering outlook from the Federal Reserve crushed hopes for a swift recovery from the coronavirus-induced slump, while a resurgence of infections in the US also worried investors.
Bonds rallied on bets yet more stimulus would be needed to ensure recovery.
Asia saw a 10-day winning streak come to an abrupt finish and Europe's main bourses all opened with a heavy thud.
In Asia, Singapore led major markets sharply lower with the Straits Times Index closing down 3.4 per cent.
Japan's Nikkei index plunged 2.8 per cent while Hong Kong's Hang Seng Index tumbled 2.3 per cent and the Shanghai Composite Index fell 0.8 per cent.
Australia's S&P/ASX 200 index tumbled 3.1 per cent while South Korea's Kospi index dropped 0.9 per cent.
London's FTSE, Frankfurt's DAX and Paris's CAC40 were all down more than 2.5 per cent in early trading what for coronavirus-sensitive sectors such as carmakers and travel and tourism was a fourth straight day of drops.
MSCI's 49-country index of world stocks slid 0.8 per cent in its largest daily loss in five weeks, while E-Mini futures for the S&P 500 fell 1.5 per cent to extend the previous session's pullback on Wall Street.
In a reality check to the stock market's recent euphoria, the Fed predicted the US economy would shrink 6.5 per cent in 2020 and unemployment would still be at 9.3 per cent at year's end.
Data had also shown core US consumer prices fell for a third straight month in May, the longest stretch of declines on record.
As a result, Fed chair Jerome Powell said he was "not even thinking about thinking about raising rates". Instead, he emphasised recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.
Market sentiment also took a hit as new coronavirus infections in the United States showed a slight increase after five weeks of declines, only part of which was attributed to more testing.
Eric Toner, a senior scholar at the Johns Hopkins Center for Health Security said that "There is a new wave coming in parts of the country. It's small and it's distant so far, but its coming."
Powell confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.
"While Powell did not commit to any new action at this time, his focus on downside risk and uncertainty reinforces the message that they will take further action, probably by September," JPMorgan economists said.
"Outcome or calendar-based guidance looks likely and Powell left the door open for moving to some form of interest rate caps."
All of which saw yields on 10-year Treasuries fall 9 basis points on Wednesday, the biggest daily drop in almost two months. Yields were down at 0.71 per cent on Thursday, a sharp rally from last week's peak of 0.96 per cent.
German Bund yields - the benchmark for Europe - duly followed. Their 10-year levels fell to an eight-day low in early trade at -0.37 per cent, falling 4 basis points on the day.
The risk of more Fed easing initially had the US dollar under pressure, seeing it touch a three-month low against a basket of currencies at 95.714.
But it then staged a rebound back towards 96.500 as risk appetite waned and stocks came off.
The dollar was last at 107.20 yen, after hitting a one-month trough at 106.87. The euro edged back to US$1.1360 , having hit its highest since mid-March on Wednesday at US$1.1422.
The prospect of super-low rates for longer had been a boon for gold overnight, but it too had run into selling in Asia, slipping to US$1,728 an ounce.
Oil prices also turned lower amid renewed concerns about demand and after US data showed crude inventories had risen to record highs.
Brent crude futures fell US$1.56 or 3.7 per cent to US$40.15 a barrel, while US crude lost US$1.57 to US$38.03.
