US equity futures and several Asian stocks fell on Wednesday
Concerns about the coronavirus pandemic have overshadowed the hope that broad political support would counter the economic fallout from the epidemic.
Most of the traditional safe haven assets were also under pressure, as battered investors sought to unwind their damaged positions, resulting in large disparities between different markets.
In Asia, the largest MSCI Asia-Pacific equity index outside Japan fell 0.3%, led by a decline of 4.9% in Australia while the Japanese Nikkei gained 1.6% .
US equity futures fell 3% in Asia, one day after the S&P 500 rose 6% and the Dow Jones 5.2% or 1,049 points.
“A 1,000 Dow rise is something you only see during a financial crisis. This is not a good sign, “said Tomoaki Shishido, senior fixed income strategist at Nomura Securities.
“An increase of 100 points would be much better for the economy. “
Wild market fluctuations imply that the ability of various players, from speculators to brokerage firms, to absorb risk has been plagued, analysts said.
The increase in S&P 500 futures the night before, still down more than 10% so far this week, occurred as policymakers bundled packages to counter the impact of the virus.
The Trump administration on Tuesday unveiled a $ 1 trillion stimulus package that could deliver 1,000 checks to Americans within two weeks to support an economy affected by the coronavirus while many other governments are considering fiscal stimulus packages.
“It would be bigger than a package of $ 787 billion that the Obama administration developed after the Lehman crisis, so in terms of size, it’s pretty big,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
“Still, the stock markets will likely remain capped by concerns over the spread of the coronavirus,” he said.
Britain has unveiled a 330 billion pound ($ 400 billion) bailout for companies at risk of collapse while France is to inject 45 billion euros ($ 50 billion) in crisis measures into its economy to help businesses and workers.
Yet bank forecasters predict a sharp economic contraction at least in the second quarter, with governments taking drastic measures to fight the virus, closing restaurants, closing schools and calling on people to stay at home.
The US Federal Reserve intervened again on Tuesday to ease corporate financial stress by reopening its financing facility for commercial paper to take out short-term business loans.
“Although the markets react to the positive news about the stimulus packages, it does not last long. I think there are a lot of banks and investors whose balance sheets have been badly affected and who still have a lot of positions to sell, “said Shin-ichiro Kadota, senior currency and rate strategist at Barclays.
BONDS AND CURRENCIES
Market damage was also apparent in the bond markets.
US Treasuries extended their losses, bringing the 10-year benchmark yield to 1.009%. It hit a two-week high of 1.105% the previous day, up more than 30 basis points.
“The amazing thing is that bonds have fallen even as the Fed buys $ 40 billion worth of bonds every day. This far exceeds previous bouts of quantitative easing from the Fed and shows just how much sales pressure there is today, “said Shishido of Nomura.
Some market participants have said that talking about big stimulus packages has raised concerns about the long-term outlook for US fiscal health, putting pressure on long-term US government bonds.
The spread between the 30-year and five-year yields fell to almost 1%, the highest since September 2017.
US 30-year bond yields jumped 38 basis points to 1.648% on Tuesday.
In the foreign exchange market, a shortage of liquidity in dollars supported the American currency.
The Australian dollar rebounded to $ 0.6008 after hitting a 17-year low of $ 0.5958 the day before.
The kiwi recovered at $ 0.5955 after hitting an 11-year low of $ 0.5919. [FRX/]
The dollar held up against most currencies, but fell 0.25% against the safe haven yen at 107.28 yen.
The euro remained stable at $ 1,1004.
US benchmark oil futures fell to near their 2016 low of around $ 26 per barrel due to the prospect of slowing demand and a price war unleashed by Saudi Arabia.