U.S. Stock Futures Drop as Anxiety About Virus Fallout Returns - The Wall Street Journal

Avantika Chilkoti and

Avantika Chilkoti

The Wall Street Journal

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@AChilkoti
avantika.chilkoti@wsj.com

Chong Koh Ping

The Wall Street Journal

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kohping.chong@wsj.com

Updated March 5, 2020 7:41 am ET

U.S. stock futures and European equities dropped Thursday, reflecting continued volatility in markets as investors around the world remain jittery about the economic fallout from the coronavirus outbreak.

Futures linked to the Dow Jones Industrial Average fell 1.8%, suggesting that the gauge for blue-chip stocks may open over 500 points lower when trading opens in New York. That would erode gains made Wednesday as a strong Super Tuesday performance by former Vice President Joe Biden and growing signs of a coordinated response to the coronavirus led to a sharp rally in U.S. stocks.

Steps by the Federal Reserve and U.S. lawmakers this week to bolster economic growth is failing to assuage investors’ concerns as more people around the world are getting diagnosed with the virus, which has claimed over 3,200 lives so far.

Health authorities are warning that it may be impossible to fully contain the pathogen as infections are spreading within many communities. Meanwhile, steps taken to halt the outbreak has curtailed travel and business activity in the epicenters of the disease.

“There is a sense that there is only so much monetary policy can do, given markets have priced that in already,” said Jonas Goltermann, senior markets economist at Capital Economics. “Even with all the stimulus measures, those are not going to stop the virus and until there are signs the rate of infection are slowing we don’t think there will be a sustained rally.”

Bond investors also signaled continued anxiety about economic prospects as they piled into safe-haven assets such as U.S. government bonds. The yield on the benchmark 10-year U.S. Treasury drifted down to 0.968%, from 0.994% at the close on Wednesday. Bond yields drop as prices rise.

European stocks also fell, taking the pan-continental Stoxx Europe 600 index down 1.5%. The basic resources sector and aerospace and defense companies were among the hardest hit.

“Much of the volatility we’re seeing is a product of this to and fro, this push and pull about which forces should have the upper hand, the technical impact from Covid-19 or the feel-good factor from policy stimulus,” said Richard McGuire, a rates strategist at Rabobank.

U.S. stocks are poised to remain turbulent with the Cboe Volatility Index, or VIX, climbing to over 36. The index, sometimes known as Wall Street’s fear gauge, last week topped 40 to hit its highest level since 2011.

With volatility elevated and gauges of investor confidence low, markets are likely to keep swinging, according to Olivier d’Assier, head of applied research for Asia-Pacific at a financial analytics firm Qontigo.

“We are going to be stuck in this for a while” Mr. d’Assier said. “You’ve got short-term traders buying on the stimulus and then you have medium- and long-term investors de-risking.”

Investor sentiment had shown signs of improvement Wednesday after U.S. lawmakers passed an $8 billion-emergency spending package on Wednesday to combat the coronavirus. Meanwhile, the International Monetary Fund detailed the $50 billion in lending programs it has that could help countries grappling with the virus.

Ahead of the opening bell in New York, travel and leisure stocks continued to take a beating. Cruise line operator Carnival dropped 3.9% and Royal Caribbean Cruises dropped 2.8% in premarket trading as travelers continue to back out of planned cruises because of virus fears. American Airlines retreated 4.8%, while Delta Air Lines dropped 3%.

In contrast, most Asian markets rose Thursday, with the Shanghai Composite Index and Hong Kong’s Hang Seng Index both closing up around 2%.

Trading day

All times EST Source:

Eli Lee, head of investment strategy at Bank of Singapore, said he viewed recent market action as noise. “The rebound is the latest in a series of gyrations we’ve seen, and reflects the fact equities were likely oversold,” he said.

Mr. Lee said a coordinated international monetary and fiscal response would help boost financial conditions and investor sentiment, but added: “These are ultimately very blunt tools against a medical crisis that is poised to cause a sharp shock to consumer demand and production.”

Shares rose in Asia early Thursday.
Photo: kazuhiro nogi/Agence France-Presse/Getty Images

In commodities, Brent crude, the global oil benchmark, wavered between gains and losses. Russia and OPEC have agreed in principle to a cut in crude output amid a global glut and eroding demand, The Wall Street Journal reported, as members of the oil-exporting group and their allies gather for a two-day meeting in Vienna.

“In order for this to succeed, they need Russia to be onboard or they would just pass over market share to a major competitor,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Later in the day, investors will be watching closely as Bank of England Gov. Mark Carney is scheduled to speak. The U.K. economy is facing twin hurdles in the form of the virus and headwinds from the Brexit negotiations with the European Union.