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- Stocks, oil, Treasury yields, and bitcoin dropped on Monday as investors worried about coronavirus choking growth despite the Federal Reserve’s surprise interest-rate cut on Sunday.
- The US central bank cut rates by a full percentage point to between 0% and 0.25%, marking its second cut in less than two weeks.
- “The Federal Reserve has panicked. It didn’t just fire its bazooka, it dropped an atom bomb of liquidity and monetary stimulus,” one analyst said.
- Chinese economic data revealed steep declines in industrial output, fixed-asset investment, and retail sales in January and February, underscoring the economic threat of coronavirus.
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Stocks, oil, Treasury yields, and bitcoin all slumped on Monday after the Federal Reserve’s surprise interest-rate cut on Sunday failed to allay investors’ concerns about the economic fallout from the coronavirus pandemic. US equity futures also reached the “limit down” band preventing declines of more than 5%.
The US central bank slashed the key funds rate by a full percentage point to between 0% and 0.25%, the lowest level since 2015, after lowering it by 0.5 percentage points less than two weeks ago. It also announced plans to buy $700 billion worth of Treasuries and mortgage-backed securities.
“The Federal Reserve has panicked,” Neil Wilson, chief market analyst for Markets.com, said in a morning note.
“It didn’t just fire its bazooka, it dropped an atom bomb of liquidity and monetary stimulus,” he added.
Central banks in China, Japan, Australia, New Zealand and other countries followed the Fed in trimming rates, boosting market liquidity, and taking other measures to shore up their economies. However, investors remain skeptical that monetary policy can do much to temper the economic toll of coronavirus.
The virus — which causes a disease called COVID-19 — has infected more than 169,000 people, killed at least 6,500, and spread to upwards of 145 countries. It threatens to hammer global economic growth this year by disrupting supply chains, forcing businesses to cut back or close, and deterring consumers from spending.
The latest developments include President Donald Trump declaring a national state of emergency on Friday, the Centers for Disease Control and Prevention (CDC) recommending the postponement of any planned gatherings of 50 people or more in the next eight weeks, and Los Angeles and New York City shutting down bars, clubs, and other entertainment venues to slow transmission of the virus.
New Chinese government data provided a worrying preview of the economic impacts of coronavirus. In the first two months of this year, industrial output tumbled 13.5% to a record low, retail sales plunged 20.5%, and fixed-asset invement fell by 24.5%, according to the Financial Times. Urban unemployment also hit a fresh high of 6.2% in February, the newspaper said.
“There’s an understanding in markets that a recession is almost guaranteed,” Jasper Lawler, head of research at London Capital Group, said in a morning note.
“Authorities throwing money at it helps but cannot stop it,” he added.
Other analysts painted an equally bleak picture.
“Markets must now accept: This is war,” Michael Every, senior Asia-Pacific strategist at RaboResearch, said in a research note.
“Governments are going to have to support households, the self-employed AND businesses large and small through this all, or we face a domino-style economic collapse,” he continued.
“The big policy guns have now all been rolled out and fired,” Every added. “Short of open helicopter money entering while playing The Flight of the Valkyries over loudspeaker, there is little left to do already.”
Here’s the market roundup as of 11:51 a.m. in London (7:51 a.m. in New York):
- European equities plunged, with Germany’s DAX down 8.4%, Britain’s FTSE 100 down 6.8%, and the Euro Stoxx 50 down 8.7%.
- Asian indexes closed lower. China’s Shanghai Composite fell 3.4%, South Korea’s KOSPI slumped 3.2%, Japan’s Nikkei dropped 2.5%, and Hong Kong’s Hang Seng fell 4.7%.
- US stocks are set to open lower. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq reached their “limit down” bands of 5%, and were down between 4.5% and 4.8% at the time of writing.
- Oil prices fell, with West Texas Intermediate down 7.6% at $29.70 a barrel and Brent crude down 10.4% at $30:30.
- The benchmark 10-year Treasury yield fell to about 0.76%.
- Gold slid 3.8% to $1,459.
- Bitcoin dropped about 16% to below $4,600.
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