US Treasury yields hit new record lows and stocks across Asia sold off sharply on rising coronavirus cases outside China, as investors raised their bets on the Fed cutting rates again.
The losses compounded another tough week for markets as investors sought shelter in government bonds from the impact of the outbreak on global economic growth.
Japan’s Topix index fell 3 per cent as the yen — seen as a haven during times of uncertainty — strengthened 0.3 per cent to touch a six-month high of ¥105.85 per dollar. The benchmark is the world’s worst performing big equity index in 2020 and is on track for its fourth week of losses.
China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 1.5 per cent in early trading, bringing it down from a two-year high notched on Thursday. Australia’s S&P/ASX 200 was down 2.8 per cent.
South Korea’s Kospi fell 2.3 per cent as the country’s health agency reported 518 new cases of Covid-19 as of Thursday, more than Wednesday’s total.
The Asian Development Bank on Friday warned that disruption from the coronavirus outbreak could lop 1.7 per cent off China’s economic growth in a worst-case scenario and bring global GDP down by as much as 0.4 per cent, with losses totalling up to $347bn worldwide.
Futures showed US stocks heading for a fall at Friday’s open on Wall Street, with the S&P 500 expected to drop another 1.4 per cent after closing Friday’s session down 3.4 per cent. The FTSE 100 was set to drop 2.1 per cent.
Investors’ flight to safety was also evidenced by the latest fall in US government bond yields. On Friday morning the 10-year yield fell as much as 11 basis points to a new record low 0.8054 per cent. The 30-year Treasury yield dropped as much as 14bp to an all-time low of 1.4051 per cent. Yields fall as bond prices rise.
The Federal Reserve earlier this week cut interest rates by 50bp following an emergency meeting. Futures markets have priced in another 50bp reduction when Fed policymakers meet March 17-18. They imply a 68 per cent chance there will be a further 25bp cut at the central bank’s April meeting.
Investors are also concerned about how coronavirus outbreaks in Japan and South Korea will hit two of Asia’s biggest economies. S&P Global Ratings on Friday forecast it would blow a $211bn hole in regional economies this year, cutting Asia-Pacific’s annual growth rate to the lowest level since the global financial crisis.
“Household spending in Japan and Korea is set to weaken further and slower growth in the US and Europe will add to external headwinds,” said Shaun Roache, S&P’s Asia-Pacific chief economist.
Brent crude, the international benchmark, fell 1 per cent to $49.48 a barrel. US marker West Texas Intermediate also slipped 0.9 per cent to $45.48.
In India, where the central bank announced the takeover of troubled private sector lender Yes Bank, the Sensex benchmark stock index dropped 3.3 per cent as the rupee weakened as much as 1.1 per cent to Inr74.0863 per dollar, the weakest level in more than 16 months.
Additional reporting by Jamie Smyth in Sydney