LONDON (REUTERS, BLOOMBERG) - Global stocks plunged into a bear market and oil slumped on Thursday (March 12) after US President Donald Trump banned travel from Europe to stem the coronavirus, threatening more disruption to the world economy.
With the pandemic wreaking havoc on the daily life of millions, investors were also disappointed by the lack of broad measures in Trump's plan to fight the Covid-19 outbreak, prompting traders to bet on further aggressive easing by the Federal Reserve.
"He (Trump) did not announce any new concrete measures such as a large-scale payroll tax cut to buffer the economy against the impending coronavirus slowdown," said Jeffrey Halley, senior market analyst at OANDA. "That has probably disappointed markets more than anything."
European shares plummeted to their lowest in almost four years, with the benchmark STOXX 600 index falling 4.9 per cent in early deals. Travel and leisure stocks shed 8.6 per cent, hitting their lowest in more than 6 years.
The falls pushed the MSCI All-Country World Index, which tracks stocks across 49 countries, into bear market territory, meaning it has fallen at least 20 per cent from its 52-week peak. The index was down nearly 2 per cent on the day.
In Asia, shares in Singapore, Australia, Japan, Thailand, the Philippines and Indonesia also entered bear territory.
The Dow reached that unwelcome milestone on Wednesday, breaking an 11-year bull run. It came after the WHO declared the coronavirus a pandemic on Wednesday rattled traders who were already on edge, The Trump travel ban ratcheted up fears the spreading virus will plunge the global economy into a recession.
Dow futures dropped as Mr Trump's economic plan stopped short of a detailed rescue package.. He announced the US government will give individuals and small and mid-sized businesses a three-month tax holiday to try to fight the economic impact of the coronavirus, and give affected companies US$50 billion (S$69.8 billion) more in low-interest loans.
US stock index futures plunged nearly 5 per cent, almost hitting their circuit breakers for the second time in a week.
“The ferocity of the sell-off reflects a massive swing in investor sentiment from complacency to panic,” said Mr Paul O’Connor, head of multi-asset at Janus Henderson Investors. “Whereas just a few weeks ago, investors were anticipating a V-shaped recovery in global growth, they are now pricing in a high probability of a global recession.”
Japan’s Nikkei index plunged 4.4 per cent while Australia’s S&P/ASX index dived 7.4 per cent, the worst one-day drop since the financial crisis in 2008.
South Korea’s Kospi index sank 3.9 per cent while Hong Kong’s Hang Seng index fell 3.8 per cent. The Shanghai Composite Index ended down 1.5 per cent.
Singapore stocks were also caught up in the maelstrom, with the Straits Times Index (STI) closing down 105.08 points or 3.8 per cent.
Thailand was the worst performer in Asia with the SE index nosediving 11.1 per cent while the Philippines lost 9.7 per cent.
"The travel ban from Europe has definitely taken everyone by surprise," said Khoon Goh, head of Asia Research at ANZ in Singapore.
Already we know the economic impact is significant, and with this additional measure on top it's just going to multiply the impact across businesses. This is something that markets had not factored in ... it's a huge near-term economic cost."
The US dollar slid in another seismic shift to price in more US interest rate cuts on Thursday, after Trump disappointed markets with a coronavirus plan light on details.
The dollar fell 0.8 per cent to 103.63 yen and lost 0.14 per cent to 0.9366 franc.
The euro traded at US$1.1265, down 0.04 per cent ahead of the European Central Bank's policy meeting later in the day. The ECB is all but certain to unveil new stimulus measures, including new, ultra-cheap loans for banks to pass onto small and medium-sized firms.
In the money market, traders further raised expectations of another US rate cut, even after the Fed's emergency cut last week.
Fed fund rate futures are now pricing in a large possibility of a 1.0 percentage point cut, rather than 0.75, at a policy review on March 17-18.
Safe-haven assets were back in favour.
Gold edged up half a per cent to US$1,641.71 per ounce but still stood well below Monday's high above $1,700.
The 10-year U..Treasuries yield fell to 0.7442 per cent , though it is still above a record low of 0.318 per cent touched on Monday.
The two-year yield fell to 0.4314 per cent, but stood well above Monday's low of 0.251 per cent.
In commodities, oil prices were hit by an intensifying price war between Saudi Arabia and Russia, on top of fears of a sharp slowdown in the global economy.
The United Arab Emirates followed Saudi Arabia in promising to raise oil output to a record high in April.
US West Texas Intermediate (WTI) crude shed 4.94 per cent to US$31.35 per barrel.