By Anna Hirtenstein and Chong Koh Ping
Market turmoil intensified on Friday as investors took refuge in safe havens, pushing long-term US government bond yields to unprecedented levels and preparing gold for its best week ever. a decade.
The return on the 10-year Treasury benchmark fell below 0.8% for the first time. Equity futures also fell as contracts linked to the Dow Jones industrial average fell 2.6%, indicating a drop of about 650 points when the blue chip index opened in New York. . On Thursday, the three main American stock market indices fell by more than 3%.
Persistent market turmoil – even after the Federal Reserve cut rates unexpectedly and US legislators approved roughly $ 8 billion in emergency spending – is now focusing attention on potential government measures to counter the economic impacts of the coronavirus.
But President Trump and White House officials said they did not see the immediate need for a broader fiscal policy response because the economy was doing well.
Friday’s monthly employment report showed that employers added more jobs than expected in February, but the impact of the report on the markets was lessened because most companies declared their workforce before the cases linked to the virus are only increasing in the United States.
“Developed economies are less and less able to support any black swan scenario,” said Sophie Huynh, cross-active strategist at Société Générale. Investors expect governments to step up a package of tax measures “despite budget constraints in Europe and the fact that this is an election year in the United States,” she said.
The drop in oil prices added to the market turmoil on Friday, with the world benchmark, Brent crude, down 5.1% to $ 47.44 per barrel. OPEC has still failed to convince Russia to join its plan to deepen production cuts as the virus epidemic saps demand for oil, the Wall Street Journal reported.
Investors looked for assets considered low risk – such as government bonds and gold – to worry about the economic impact of the coronavirus. The 10-year Treasury bill yield slipped to 0.758% after reaching a record intraday level of 0.701%. It closed at 0.924% on Thursday. The benchmark 30-year return fell to 1.356%.
The Treasury market has gone beyond simply anticipating rate cuts, according to Victor Yong, interest rate strategist at UOB Bank in Singapore.
“Looking at recent price behavior, it is no longer about prices in the Fed’s downturn,” he said. “It is first and foremost a flight to quality.”
Market movements have become more extreme due to uncertainties about the duration of the epidemic and its economic effects, said Yong. Previous assumptions about a V-shaped recovery have disappeared, he said.
Futures markets suggest that the Fed’s key rate should be between 0.25% and 0.5% only in late April. This would only be 0.25 percentage points above the level near zero that lasted from the depths of the global financial crisis until December 2015.
The pan-continental Stoxx Europe 600 indicator fell 3.5% to its lowest level since August. The main Asian stock indexes closed lower on Friday, with the Shanghai composite index losing 1.2%.
“People accept the magnitude of the crisis: they know governments are doing the right thing, but what your brain tells you isn’t always what you feel emotionally,” said Sébastien Galy, senior macro strategist at Nordea Asset. Management. “We see the emotional brain of the market today.”
The 10-year German Bund, widely regarded as a risk-free asset by European investors, fell to minus 0.727%, down from minus 0.682% on Thursday. Yields move inversely relative to bond prices.
Haven assets advanced, the Japanese yen advancing 0.8% against the dollar. Gold rose 1.1% and is on track for its best performance in a week since December 2008.
The ICE Dollar Index, which tracks the US dollar against a basket of six major currencies, fell 0.9% on Friday.
Russia’s reluctance to join OPEC in production cuts is a “big disappointment,” said Bjarne Schieldrop, chief raw materials analyst at Nordic financial services company SEB. Investors are now predicting that only 1 million barrels a day will be cut, instead of 1.5 million barrels, he said.
Brent crude has dropped 27% since the start of the year, as coronavirus hammered demand. The deal had suggested Thursday that its members reduce production by a million barrels a day and that Russia and its allies reduce by 500,000 barrels. Oil ministers continue to meet in Vienna on Friday.
“This creates downside risk and much less clarity,” said Schieldrop. “There is also the risk that OPEC members will not reduce at all if Russia and the cooperating countries do not join.”
Later in the morning, the jobs report for the United States for February will provide new insights into the health of the US economy before the coronavirus epidemic begins to affect business activity. Economists polled by the Wall Street Journal expect 175,000 jobs to have been created last month and the unemployment rate to be 3.5%, a 50-year low.
The US Department of Commerce will also release data on the trade deficit, which is expected to have fallen to $ 46 billion in January from $ 48.88 billion the previous month.
Write to Anna Hirtenstein at [email protected] and to Chong Koh Ping at [email protected]
(END) Dow Jones Newswires
06 March 2020 08:57 ET (13:57 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.