TOKYO (REUTERS) - US stock futures and Asian markets fell in choppy trade on Wednesday (March 18), as worries about the coronavirus pandemic eclipsed hopes stimulus measures would combat the economic fallout of the outbreak.
Most traditional safe-haven assets were also under pressure as battered investors looked to unwind their damaged positions, leading to wide discrepancies between various markets.
Japan’s Nikkei index gave up early gains and closed 1.7 per cent lower dragged down by SoftBank Group and other heavyweights. Australian stocks sank 6.4 per cent on recession fears.
Hong Kong's Hang Seng fell 2.5 per cent while South Korea's Kospi index dropped 3.3 per cent. Shares in Shanghai reversed course and were down 0.8 per cent.
Singapore's Straits Times index erased an 1.4 per cent gain, trading down 0.1 per cent as of 2:26pm local time.
US S&P 500 futures once again fell by their limit, a day after the S&P 500 rose 6 per cent and Dow Jones rose 5.2 per cent or 1,049 points. As of around 1pm Singapore time, futures on the Dow Jones Industrial Average fell 821 points, indicating a more than 1,000-point loss at Wednesday’s open
“A rise of 1,000 points in Dow is something you see only during a financial crisis. It is not a good sign,” said Tomoaki Shishido, senior fixed income strategist at Nomura Securities. “A rise of 100 points would much better for the economy.”
Wild swings in markets imply the capacity of various players, from speculators to brokerages, to absorb risks has been tormented, analysts say.
The increase in the S&P 500 futures the previous day, still down more than 10 per cent so far this week, came as policymakers cobbled together packages to counter the impact of the virus.
The Trump administration on Tuesday unveiled a US$1 trillion (S$1.43 trillion) stimulus package that could deliver US$1,000 cheques to Americans within two weeks to buttress an economy hit by coronavirus while many other governments look to fiscal stimulus.
“That would be bigger than a US$787 billion package the Obama administration came up with after the Lehman crisis, so in terms of size it is quite big,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
“Yet stock markets will likely remain capped by worries about the spreading coronavirus,” he said.
Britain unveiled a £330 billion (S$518.8 billion) rescue package for businesses threatened with collapse while France is to pump 45 billion euros (S$70.9 billion) of crisis measures into its economy to help companies and workers.
Still, forecasters at banks are projecting a steep economic contraction in at least the second quarter as governments take draconian measures to combat the virus, shutting restaurants, closing schools and calling on people to stay home.
The US Federal Reserve stepped in again on Tuesday to ease funding stress among corporates by reopening its Commercial Paper Funding Facility to underwrite short-term corporate loans.
“While markets react to positive news on stimulus, that doesn’t last long. I think there are a lot of banks and investors whose balance sheet was badly hit and they still have lots of positions to sell,” said Shin-ichiro Kadota, senior currency and rates strategist at Barclays.
BOND AND CURRENCIES
The damage to markets was apparent in bond markets as well.
US Treasuries extended their losses, driving the benchmark 10-year yield to 1.009 per cent. It hit a two-week high of 1.105 per cent in the previous day, rising more than 30 basis points.
“The staggering thing is, bonds have fallen even as the Fed has been buying 40 billion dollars of bonds every day. That far outpaces the Fed’s previous episodes of quantitative easing and shows just how much selling pressure there is now,” said Nomura’s Shishido.
Some market players said talk of big stimulus is raising concerns about the long-term outlook of US fiscal health, putting pressure on long-term US government bonds.
The spread between 30-year and five-year yields rose to almost 1 per cent, the highest since September 2017.
The US 30-year bonds yield jumped 38 basis points on Tuesday to 1.648 per cent.
In the currency market, a shortage of dollar cash supported the US currency.
The Australian dollar bounced back to US$0.6008 after having hit a 17-year low of low of US$0.5958 the previous day.
The kiwi recovered to US$0.5955 after hitting a 11-year trough of US$0.5919.
The dollar held firm against most currencies but dipped 0.25 per cent against the safe-haven yen to 107.28 yen.
The euro was steady at US$1.1004.