* Asian stock markets: tmsnrt.rs/2zpUAr4
* Market prices at risk of pandemic, serious damage to the global economy
* Nikkei futures contract down 1000 points, matching Dow
* Bonds soar as investors bet on central bank, fiscal stimulus
* Oil dominates steeply declining commodities due to demand fears
By Wayne Cole
SYDNEY, February 25 (Reuters) – Asian stock markets were heading south on Tuesday, concerned that the coronavirus would quickly turn into a pandemic that could cripple global supply chains and cause far greater economic damage than we never thought so.
U.S. and European equities have suffered their biggest losses since mid-2016, while demand is for wild prices for oil and a range of industrial products.
Sovereign bond yields plunged as investors sought the most liquid safe haven and wagered central banks should come to the rescue with an explosion of new stimulus packages.
“This is a world where economies are so intertwined that it is difficult to know what the economic impact will be,” said Rodrigo Catrill, currency strategist at NAB.
“It is certainly difficult to see a catalyst that could stop short-term losses, although the market has been aggressively moving towards rate cuts in the United States since June.”
Futures contracts for the Federal Reserve fund rate have jumped in recent days to boast of a better than equal chance of a quarter point drop in April. In total, they imply more than 50 basis points of reductions by the end of the year.
Asian central banks have already relaxed their policies, while governments have promised large injections of fiscal stimulus, which Western countries may need to consider.
For now, selling stocks seemed to be the safe choice for investors, and futures suggested that the Japanese Nikkei could mirror the Dow Jones and lose 1,000 points at the opening.
The largest MSCI index of Asia Pacific stocks outside of Japan fell 0.2% at the start of the session, after declining 2.5% on Monday. and Australia lost 1.4% more.
The E-Mini futures for the S&P 500 fell 0.2% after plunging overnight as all the implications of the spread of the virus finally caught up with Wall Street.
The Dow Jones ended Monday down 3.55%, while the S&P 500 lost 3.35% and the Nasdaq 3.71%. The Wall Street fear indicator, the CBOE volatility index, reached its highest level since early 2019.
The economic impact of the virus was underscored by a 3.5% drop from Apple Inc., with data showing that smartphone sales in China fell by more than a third in January.
BONDS BAY FOR RATE CUTS
The number of deaths from coronaviruses soared to seven in Italy on Monday and several countries in the Middle East had to deal with their first infections, raising fears that it would turn into a pandemic.
“If travel restrictions and supply chain disruptions spread, the impact on global growth could be more widespread and more lasting,” said Jonas Glotermann of Capital Economics.
“While we still believe that it would take a significant deterioration in the outlook for the US economy for policy makers to lower rates, they may feel compelled to do so if the virus spreads and leads to continued market declines stock market and reversal of the Treasury. yield curve. ”
The bond rush drove 10-year Treasury bill yields down 10 basis points to 1.37%, paying less than a three-month deposit. Yields are now rapidly approaching the all-time low of 1.321% reached in July 2016.
The sharp drop, combined with the simple fact that the Fed had much more room to cut rates than its counterparts, kept the US dollar held back after a series of solid gains.
The euro advanced slightly from recent three-year lows to $ 1.0853, while the dollar fell to 110.77 yen and far from a 10-month high at 112.21.
Against a basket of currencies, the dollar remained practically stable at 99.286.
The search for safe harbors saw gold hit a seven-year high at $ 1,688.66 an ounce overnight. The metal was trading for the last time at $ 1,658.94.
Demand worries saw oil prices go the other way, losing nearly 4% on Monday. Brent crude futures fell $ 2.28 to $ 56.22 a barrel, while US crude fell from $ 2.04 to $ 51.34.
