TOKYO- 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, threatening more disruptions to trade and the world economy.
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 percent to their lowest levels since mid-2016. They were last down 6.9 percent 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 percent in Asia and last traded down 3.6 percent, a day after the S&P 500 lost 4.89 percent, leaving the index on the brink of entering bear market territory, defined as a 20 percent fall from a recent top.
MSCI’s broadest gauge of world shares, could follow suit, having fallen 19.2 percent 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 percent to a trough last seen almost three years ago while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 4.7 percent.
Australian shares plunged 7.4 percent to the lowest level in more than three years while Seoul’s Kospi fell 4.8 percent to 4-1/2-year lows with massive selling prompting a brief trade halt. Thai shares sank 8.8 percent to 8-year lows.
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.
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.
The World Health Organization (WHO) 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.
Investors worry how much of an effect economic policies can have in turning around the global economy given the widespread restrictions on daily life, travel and disruptions to businesses.
A case in point was Britain, where the FTSE stock index hit near four-year lows on Wednesday as investors doubted whether the $39 billion spending plan and the Bank of England’s 0.5 percentage point rate cut announced on Wednesday would be enough to counter the shock from the outbreak.
The British pound last stood at $1.2807, near this week’s low.
“At this stage, we all need to take it on the chin and bear it for a few months (in terms of economic disruption),” said Cliff Tan, East Asian Head of Global Markets Research at MUFG Bank in Hong Kong.
“Here in Hong Kong and China we have been through it and know what’s it like to shut down… I don’t think the market has fully caught on with how this disruptive this could be for the economy.” – Reuters
