In a taste of what was to come, E-Mini futures for the S&P 500 dived 5% right at the start of Asian trading to be limit down. Nikkei futures JNIc1 sank 5.8%.
Oil was not far behind as mass bans on travel worldwide crushed demand for fuel. Brent crude futures slid a further US$1.90 to US$25.01 a barrel in chaotic trade, while US crude shed US$1.58 to US$21.05.
Analysts fear the collapse in oil and other commodity prices will set off a deflationary wave making it harder for monetary policy easing to gain traction as economies shut down.
Nearly one in three Americans were ordered to stay home on Sunday to slow the spread of the disease, while Italy banned internal travel as deaths there reached 5,476.
US President Donald Trump went on TV to approve disaster deceleration requests from New York and Washington, while St Louis Federal Reserve President James Bullard warned unemployment could reach 30% unless more was done fiscally.
US stocks have already fallen more than 30% from their mid-February and even the safest areas of the bond market experiencing liquidity stress as distressed funds are forced to sell good assets to cover positions gone bad.
“It would be a brave, or foolish, man to call the bottom in equities without a dramatic medical breakthrough,” said Alan Ruskin, head of G10 FX strategy at Deutsche Bank.
Also needed would be evidence that China can re-emerge from the virus, without reigniting infections and, that other major economies have hit the inflection points for infection rates, he added.
“Even were social distancing to subside at the earliest plausible dates in Europe and the US, it will have done extraordinary damage to confidence in a host of key sectors.”
The mounting economic toll led to a major rally in sovereign bonds late last week, with efforts by central banks to restore liquidity in the market allowing for more two-way trade.
Yields on the benchmark US 10-year note dived all the way to 0.84% on Friday, having been as high as 1.28%, an enormous swing that has become all too common.
Treasury futures extended the bounce today by climbing more than a full point.
In New Zealand, the central bank announced its first outright purchase of government paper aiming to inject much-needed liquidity into the local market.
In currency markets, the first instinct today was to dump those leveraged to global growth and commodity prices, sending the Australian dollar down 1.4% to US$0.5717.
The US dollar was again buoyed by safe-haven flows and edged up 0.2% on the yen to 111.03, while the euro eased 0.3% to US$1.0662.
Against a basket of currencies the dollar gained 0.4% to 102.810.
The steady rise in the dollar undermined gold, which slipped 0.5% to US$1,490.07 per ounce. – March 23, 2020, Reuters
