Via Financial Times

Bar chart of Biggest one-day falls, % showing S&P 500 suffers fifth-biggest one-day drop on record

Asian stocks plummeted and US futures pointed to further losses following the largest one-day rout on Wall Street since 1987 as moves by central banks globally failed to stem the wave of selling prompted by the coronavirus.

Japan’s Topix plunged over 9.2 per cent shortly after opening on Friday, dragging the benchmark down almost 30 per cent for the year. Overnight US stocks fell almost 10 per cent after US President Donald Trump banned Europeans from travelling to the US in an attempt to halt the spread of Covid-19. Markets in Europe suffered similarly steep falls.

Elsewhere, China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 4.6 per cent while the Hang Seng shed 6.7 per cent in the Hong Kong index’s biggest one-day fall since the financial crisis. Australia’s S&P/ASX 200 was down 7.5 per cent.

Futures trading pointed to a fall of 1.6 per cent for the S&P 500 when Wall Street begins trading later on Friday.

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“It’s more panic selling than anything this morning,” said Keishi Ueda, Japan strategist at JPMorgan. “Everyone just wants to know where the bottom is.” 

Liquidity measures announced by the world’s big central banks have failed to soothe investors’ nerves. On Friday, the Bank of Japan offered to buy ¥500bn ($4.7bn) worth of Japanese government bonds in an unscheduled repurchase operation, a measure traders said was aimed at calming the market.

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The Federal Reserve on Thursday promised to funnel trillions of dollars into short-term funding markets — the third injection in four days — after investors said US government bond trading had begun to malfunction in the face of escalating market volatility. On Friday the 10-year US Treasury yield fell 5 basis points to 0.754 per cent. Yields fall as bond prices rise.

The Europe Central Bank on Thursday declined to join the Fed and Bank of England in cutting rates but announced a package of economic support measures.

There are now growing fears among investors in Asia that global markets are heading toward the type of dollar funding squeeze that took hold during the global financial crisis in 2008. If the Japanese stock market closes 10 per cent lower on Friday, it would mark its biggest one-day decline since April 1990, during the bursting of the country’s economic bubble.

Elsewhere in Asia, benchmark stock indices fell 8, 5 and 10 per cent in South Korea, Indonesia and Thailand, respectively, triggering trading halts for all three countries’ stock markets.

Line chart of Stoxx Europe 600 % daily moves  showing European stocks tumble

Prakash Sakpal, Asia economist at ING, warned “markets are prepared for the worst”, with investors on high alert for news signs of policy response. The investment bank expected China’s central bank would push its reference lending rate down another 10 basis point next week. Central banks in Japan, Taiwan, Indonesia and the Philippines are also due to meet next week.

Despite its reputation as a haven during market sell-offs, the yen slid further against the dollar on Friday to just above ¥105 per greenback. Traders pointed to worries about a dollar squeeze alongside more signs of huge outflows into foreign bonds by Japanese pension funds, led by the $1.6tn Government Pension Investment Fund.

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