Asia-Pacific stocks fell as negotiations over a $2tn package to support the US economy during the coronavirus outbreak faltered, kicking off what could be another volatile week for global markets.
US senators’ failure to quickly advance legislation through Congress aimed at helping the world’s biggest economy weather the effects of the pandemic darkened investors’ outlook as the pandemic shows little sign of easing.
News that Senator Rand Paul tested positive for coronavirus added to unease, said Mansoor Mohi-uddin, a senior macro strategist at NatWest Markets. “Investors will be very concerned that if policymakers become incapacitated they can’t push that stimulus through.”
On Monday, Australia’s S&P/ASX 200 index fell 4.1 per cent to a more than seven-year low, while South Korea’s Kospi skidded 3.6 per cent. China’s CSI 300 dropped 1.9 per cent and Hong Kong’s Hang Seng lost 3.8 per cent.
Futures markets pointed to more losses when Wall Street opens on Monday, with S&P 500 contracts sliding 3.9 per cent. Coronavirus cases in the US have reached almost 30,000, with New York state the worst hit. FTSE 100 futures were 5 per cent lower.
“Policymakers have been very proactive at providing monetary support, but fiscal support is coming in fits and starts,” said Johanna Chua, an Asia strategist at Citi. The “UK’s fiscal support is massive, but [the] rest of Europe and the US are still slow”.
The US remained strong, hitting regional currencies, as investors and companies liquidated positions and hoarded cash. The South Korean won fell 2 per cent to Won1,279.10 per dollar while the Australian dollar slid 0.8 per cent to $0.5754, down 18 per cent against its US counterpart this year.
But in Japan the Topix index gained 0.8 per cent after the country returned from a three-day weekend. Traders said dealing floors now assumed that the central bank would intervene heavily at any sign of market capitulation.
The Bank of Japan said after the market closed on Thursday that during the day it had bought more than ¥200bn ($1.8bn) of exchange traded funds, its biggest one-day intervention in history. The yen’s fall past ¥110 per dollar was also supporting the market, traders said.
The 10-year US Treasury yield dropped 4 basis points to 0.809 per cent. The yield on the equivalent Australian government bond fell 23 basis points to 0.877 per cent after the central bank said it would buy up to another A$4bn ($2.3bn) of government debt. Bond yields fall as prices rise.
Brent crude, the international oil benchmark, declined 2.7 per cent to $26.24 a barrel.
The virus’s rapid spread has left investors scrambling to quantify its economic impact. Michael Hood, a global strategist at JPMorgan Asset Management, forecast a quarter-on-quarter drop of 14 per cent in US gross domestic product in the first three months of the year.
“Given that no one can be certain how the virus outbreak will unfold, the risk appears to be on the weak side of even these catastrophic numbers,” he added.
Additional reporting by Leo Lewis in Tokyo