Stock markets were routed and the dollar stumbled on Monday after the Federal Reserve slashed US interest rates in an emergency move and its major peers offered cheap US dollars in a bid to prevent global lending markets seizing up.
The drastic manoeuvres were aimed at cushioning the economic impact as the breakneck spread of the coronavirus all but shut down more countries, but they had limited success in calming panicky investors.
Europe, which has become the epicentre of the outbreak, saw its main stock markets plunge nearly eight per cent in brutal opening trade. Earlier, Wall Street futures for the S&P 500 index had hit their down-limit in the first 15 minutes of Asian trading as investors rushed for safety.
“The central banks threw the kitchen sink at it yesterday evening yet here we are (with deep falls in stock markets),” said Societe Generale strategist Kit Juckes.
“There is a great sense that central banks are going to get to grips with the issues of getting money flowing ... But the human problem, the macro problem, there is nothing they can do about that.”
The Fed’s emergency 100 basis point rate cut on Sunday was followed on Monday by further policy easing from the Bank of Japan in the form of a pledge to ramp up purchases of exchange-traded funds and other risky assets.
Cut rates
New Zealand’s central bank also shocked by cutting rates 75 basis points to 0.25 per cent, while the Reserve Bank of Australia (RBA) pumped more money into its financial system. South Korea cut rates and Russia rushed together a $4 billion (Sh400 billion) anti-crisis fund.
Japanese Prime Minister Shinzo Abe said G7 leaders would hold a teleconference later yesterday to discuss the crisis.
MSCI’s index of Asia-Pacific shares outside Japan tumbled four per cent to lows not seen since early 2017, while the Nikkei fell two per cent as the BoJ’s easing steps failed to reassure markets.
Chinese data underscored just how much economic damage the disease has already done to the world’s second-largest economy, with official numbers showing the worst drops in activity on record. Industrial output plunged 13.5 per cent and retail sales 20.5 per cent.
Markets have been severely strained as bankers, companies and individual investors stampede into cash and safe-haven assets while selling profitable positions to raise money to cover losses in savaged equities.
To ease the dislocation, the Fed cut interest rates by a full percentage point on Sunday to a target range of zero per cent to 0.25 per cent, its second cut this month, and promised to expand its balance sheet by at least $700 billion (Sh70 trillion) in coming weeks.
US President Donald Trump, who has been haranguing the Fed to ease policy, called the move “terrific” and “very good news”.
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