Stocks, bonds and commodities fell Wednesday in a simultaneous selloff that suggests investors are seeking to raise cash quickly to cope with the economic disruption sparked by the coronavirus pandemic.
The Dow Jones Industrial Average fell 1,420 points, or 6.7%, to 19818 in midday trading. The S&P 500 dropped 5.8% and the Nasdaq Composite declined 4.6%. All three indexes are down about 30% from their mid-February highs.
Oil, meanwhile, plunged 15% to its lowest level in more than 18 years.
Investors are even shunning assets that are normally considered the safest, including long-term government bonds and gold. That rarely happens when riskier assets like stocks are also falling.
Yields on government bonds in most major economies including the U.S., Japan and across Europe rose sharply Wednesday, while investors sheltered in the shortest-term government debt and cash.
The yield on the U.S. 10-year Treasury note rose to 1.069% from 0.994% Tuesday as bond prices tumbled. Gold fell about 1%.
The selling of government debt shows the market mentality has completely flipped, said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
“Now that they’ve gotten around to U.S. Treasurys, that tells you that legitimately nothing is safe,” he said. “There’s no place to hide other than cash.”
The ramifications of the pandemic are spiraling quickly. The number of infections globally crossed 200,000, more than doubling in just two weeks. Governments are asking citizens abroad to come home and those already at home to stay there.
“It’s happening so fast, it’s almost too much to grasp at this point,” said Frank Cappelleri, the executive director at Instinet. “It’s at the point where if you check the futures at nighttime and you’re not limit down, it’s a relief.”
That has thrown the market’s “risk on” attitude into sharp reverse. A month ago, stocks were hitting new records daily. A week ago, investors were debating whether the pandemic would cause a recession. Now, the question is whether the economy will be thrown into its worst recession in decades.
“When even silver and gold are getting crushed, that’s a panicked drawing of liquidity,” said Rob Arnott, founder of California-based investment firm Research Affiliates. “In the U.S., you can’t find toilet paper anywhere: This is the capital markets equivalent of that.”
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The pan-continental Stoxx Europe 600 index fell 4.2%, hitting its lowest level since December 2012. Most major Asian markets closed lower, with Hong Kong’s Hang Seng Index falling 4.2%.
The sharp moves laid the groundwork for another choppy day of trading in the U.S.
“The markets have become fast: you don’t know what a fair price is, and you don’t know where the liquidity is, so you only sell if you’re forced to,” said Neil Dwane, portfolio manager and global strategist at Allianz Global Investors. “This volatility is undermining confidence more as each day goes by.”
U.S. crude futures plunged to their lowest level since November 2002 as Saudi Arabia and Russia forged ahead with plans to raise output in their continued price war. The demand for oil is also likely to drop as authorities globally escalate emergency measures to curtail the spread of the virus. Brent crude, the global benchmark for oil prices, fell 6.5%.
Businesses and institutions are shutting their doors in the U.S. and Europe and sending staff home as countries struggle to contain the outbreak of the coronavirus. This will mean a sudden stop or major disruption to revenue and cash flows for many companies, fund managers and people even as they still have to pay rent, utility bills and other fixed costs.
The volatility of recent days in the U.S. government bond market continued, with investors snapping up short-term government bonds that are the closest equivalent to cash: the yield on 1-month Treasury bills fell to -0.005% from 0.08% Tuesday, according to FactSet.
Yields on bonds issued by Southern European nations widened as investors shunned the continent’s riskier debt amid increased fiscal spending plans to counter the coronavirus outbreak. Italy’s benchmark 10-year bond yield briefly soared above 3% to the highest level since February 2019, before easing to 2.28%. The yield on Greek debt rose to 3.83%. Less than a month ago, it was below 1%.
In commodity markets, copper prices tumbled as the pandemic sapped demand for raw materials outside China. The base metal dropped 6% on the London Metal Exchange, falling below $5,000 a metric ton for the first time since late 2016.
In one sign of the damage created by the turbulence, Malachite Capital Management LLC, a U.S. hedge-fund manager specializing in trading volatility, said it would shut down immediately, citing “extreme adverse market conditions” and the effects on fund performance.
In currency markets, the ICE U.S. Dollar Index, which tracks the dollar against a basket of other currencies, rose 1.6%.
The British pound fell to its lowest level against the dollar in at least 35 years as investors reassessed the growth outlook for the U.K. Sterling fell 2% against the dollar to $1.1816 Wednesday, extending its rout this year to 11%.
Markets remain jittery despite a series of measures taken by central banks. In recent days, the Federal Reserve has slashed rates and extended terms on emergency loans to banks borrowing from its discount window, relaunched a financial-crisis-era commercial paper tool, and ensured dollars were available internationally via swap lines with five major central banks.
Those interventions show that the markets are having a hard time just functioning normally, said Shawn Snyder, head of investment strategy at Citi Personal Wealth Management. And no amount of fiscal or monetary stimulus can provide the one thing everybody wants to know, he said. “Neither one can stave off infection,” he said.
Economists are slashing growth forecasts, with some warning the coronavirus will trigger a global recession. Deutsche Bank AG said gross domestic product could shrink 24% in the eurozone and 13% in the U.S. in the second quarter on an annual, seasonally adjusted basis—declines that would be the biggest in recorded history.
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—Paul J. Davies contributed to this article.
Write to Xie Yu at Yu.Xie@wsj.com, Anna Isaac at anna.isaac@wsj.com and Paul J. Davies at paul.davies@wsj.com
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https://www.wsj.com/articles/u-s-futures-fall-asian-markets-mixed-11584498324
2020-03-18 16:42:31Z
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