Asia stocks, US futures slide despite Fed rate cut; STI opens down 3.3%

Traders work on the floor of the New York Stock Exchange shortly after the closing bell, on March 13, 2020.
Traders work on the floor of the New York Stock Exchange shortly after the closing bell, on March 13, 2020.PHOTO: REUTERS

SYDNEY (REUTERS) - Stock markets and the US dollar fell heavily on Monday (March 16), after emergency rate cuts in the United States and New Zealand failed to allay fears about the coronavirus' economic shock.

US stock futures hit their downlimit before daybreak in Singapore. E-mini futures for the S&P 500 index dropped 4.77 per cent to their daily trading limit outside the United States.

Japan's key Nikkei index opened higher but immediately dropped lower as investors waited for the results of an emergency policy meeting at the Bank of Japan at 12pm in Tokyo (11am Singapore time). 

The Nikkei lost 1.3 per cent, Australia's benchmark stock index was down 5.4 per cent, off an earlier 7 per cent loss. South Korea's Kospi index opened down 1.6 per cent.

Singapore's shares sank on opening, with the Straits Times Index plunging 86.06 points or 3.3 per cent to 2,547.94 as of 9:03am.

The US dollar sank more than 2 per cent against the yen, while US crude fell 5 per cent to under US$30 per barrel.

The US Federal Reserve slashed interest rates by 100 basis points on Sunday to a target range of 0 per cent to 0.25 per cent. It said it would expand its balance sheet by at least US$700 billion (S$989.6 billion) in coming weeks.

"(The) market is wondering what the Fed knows that the rest of us don't," said Phil Orlando, chief equity market strategist at Federated Hermes in New York.

"Is Covid-19 an even bigger deal than we think?"

New Zealand's central bank also slashed interest rates by 75 basis points, sinking the country's currency, as it prepared for a "significant" hit to the economy.

US Treasuries futures jumped more than a full point.

Lockdowns and travel bans spread across the globe over the weekend, affecting tens of millions of people.

"(The Fed) must really be scared. To do that in one fell swoop is really quite shocking," said Robert Pavlik, chief investment strategist at Slatestone Wealth LLC in New York.

"They pulled out whatever weapons they had and my sense is I think it may help initially but I don't think it goes much further because this is still a developing issue. They used up basically all their ammunition and we're down to sticks and stones."

 
 

Five other central banks also cut pricing on their swap lines to make it easier to provide dollars to their financial institutions facing stress in credit markets.

The swap lines were set up by the Fed, the Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank in the financial crisis. They also agreed to offer three-month credit in US dollars on a regular basis and at a rate cheaper than usual.

The move was designed to bring down the price banks and companies pay to access US dollars, which has surged in recent weeks as the pandemic spooked investors.

US President Donald Trump called the move "terrific" and "very good news."

Along with the New Zealand cut, and Australia's central bank poured US$3.6 billion in liquidity into Australia's financial system.

"Central banks around the world continue to react with emergency interest rate cuts to assist with the shock to demand arising from the spread of the COVID-19 virus, with necessary public health containment efforts coming at a substantial economic cost," NAB chief economist Alan Oster.

"Central banks are also appropriately providing additional liquidity to financial systems."

 
 

In currency markets, the dollar dropped 1.7 per cent on the Japanese yen to 106.01, while the euro climbed 0.5 per cent to US$1.1168.

The risk-sensitive Australian dollar fell 0.25 per cent to US$0.6182 while the New Zealand dollar slipped 0.1 per cent to US$0.6048. Oil prices fell about 5 per cent and gold rose.

Brent crude dropped US$1.80 to US$32.03 per barrel.