Financial markets reeled on Thursday as stocks dived and oil slumped after US President Donald Trump took the dramatic step of banning travel from Europe to stem the spread of coronavirus.
With the pandemic wreaking havoc on daily life of millions worldwide, investors were also disappointed by the lack of broad measures in Trump’s plan to fight the pathogen, prompting traders to bet of further aggressive easing by the Federal Reserve.
Euro Stoxx 50 futures plunged 8.3 per cent to their lowest levels since mid-2016. They were last down 6.9 per cent while investors rushed to safe-haven assets from bonds to gold to the yen and the Swiss franc.
US S&P 500 futures plummeted as much as 4.9 per cent in Asia and last traded down 3.6 per cent, a day after the S&P 500 lost 4.89 per cent, leaving the index on the brink of entering bear market territory, defined as a 20 per cent fall from a recent top.
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MSCI’s broadest gauge of world shares, ACWI, could follow suit, having fallen 19.2 per cent so far from its record peak hit only a month ago.
“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.”
Those fears left a trail of red across many markets. Japan’s Nikkei crumbled 4.4 per cent to a trough last seen almost three years ago while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 4.7 per cent.
Trump announced on Wednesday the United States will suspend all travel from Europe, except from the United Kingdom, to the United States for 30 days starting on Friday. However, Trump said trade will not be affected by the restrictions.
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He also announced some other steps, including instructing the Treasury Department to defer tax payments for entities hit by the virus.
“For those who had been hoping for measures to offset likely fall in consumption, it was a disappointment,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “There was no talk of payroll tax cuts.”
In the money market, traders further raised their expectations of an aggressive US rate cut, underlining the fears in markets of a deepening economic downturn even as the Federal Reserve had stepped in last week with an emergency easing.
Fed fund rate futures are now pricing in a large possibility of a 1.0 percentage point cut, rather than 0.75 percentage point, at a policy review on March 17-18.
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The World Health Organization described the outbreak as a pandemic for the first time on Wednesday though an official said the move does not change the agency’s response.
The highly infectious disease that virtually shut down most parts of China for much of February is spreading rapidly in Europe and increasingly in the United States, disrupting many corners of life from education to sports, entertainment and dining.
The US National Basketball Association was the latest to be hit by the pandemic as it announced it will suspend the season until further notice.