Daily market review

United States

Frenzied selling continued Thursday amid perceptions that authorities are failing to control the global pandemic or limit its widening fallout. The Dow industrials plunged 10.0 percent, the S&P 500 dropped 9.5 percent, and the NASDAQ was off 9.4 percent, as all indexes fell into bear-market territory.

The ECB held interest rates unchanged but announced a big expansion of its quantitative easing program, and the Fed pledged to widen the maturities it buys, outside of T-bills, under its existing $60 billion of monthly direct purchases as well as add large repos to the short-term funding market. US equity indexes briefly bounced on the Fed's announcement, but the selling accelerated again in the afternoon.

The ECB action left markets disappointed, alongside President Trump's televised statement Wednesday night. Trump's decision to suspend some European travel appeared to add to market confusion and to selling pressure affecting travel and other sectors. Lack of clarity on a US fiscal response added to the negative sentiment. Markets see a US contraction starting in the second quarter, with layoffs and business losses across the economy stemming from the spreading virus.

Among sectors, energy and financials were hit hardest on global recession expectations. Health care held up best but was still down dramatically, as all sectors were deep in the red.

Among companies in focus, Carnival, the cruise line company, dropped 31 percent after suspending its operations. Boeing fell 18 percent after being downgraded at JP Morgan in light of the virus hit to orders and uncertainty over recertification of the 737 Max. American Airlines fell 18.3 percent as all airlines were hurt by the US travel limits.

In US economic news, pulled down by energy, producer prices proved weaker than expected in February, down 0.6 percent at the headline level, down 0.3 percent less food and energy and down 0.1 percent when also excluding trade services. The headline decline is the sharpest in five years.

These data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$3.03 to US$32.69, while gold fell US$72.90 to US$1,569.50. The US dollar rose sharply against most major currencies. The US Treasury 30-year bond yield rose 7 basis points to 1.46 percent while the 10-year note yield rose 6 basis points to 0.89 percent. Short-end yields dropped.


Equities cratered Thursday amid panicky selling on the spreading virus, disappointment over the ECB's decision to keep rates steady, and US travel restrictions. The Europe-wide STOXX 600 tumbled 11.5 percent, the German DAX dropped 12.2 percent, the French CAC lost 12.3 percent, and the UK FTSE-100 was off 10.9 percent.

President Trump's decision to suspend travel between most of Europe and the US hit travel stocks hard, with airlines including Lufthansa (down 9.4 percent) and Air France (down 10.5 percent) leading the nosedive. Cineworld, a movie theater operator, fell 19 percent after warning it may not be a going concern if the pandemic worsens. Retailers were hit hard by the outbreak, with WH Smith down 13 percent after the UK retailer warned of a hit to its business.

In economic news, Eurozone goods production (excluding construction) saw a much-needed rebound at the start of the year. The December monthly drop was trimmed from 2.1 percent to 1.8 percent and January more than reversed this decline with a surprisingly large 2.3 percent gain, its first rise since last August.

Asia Pacific

Major Asian markets again sold off aggressively Thursday, with government efforts to respond to the global coronavirus outbreak having little immediate impact on investor sentiment. Australia's government announced a large fiscal package aimed at offsetting the impact of the outbreak on its economy. The impact of these and other measures on investor confidence appeared to be outweighed by the further deterioration in conditions in Italy, the US ban on flights from Europe, and the declaration by the World Health Organisation that the outbreak has reached pandemic status.

Australia's All Ordinaries index was again hit hard, falling another 7.2 percent on the day, with major energy exporters, banks, and large retailers among those posting large declines. Japan's Nikkei and Topix indices also moved into bear-market territory with declines of 4.4 percent and 4.1 percent respectively on the day. The Shanghai Composite index closed down 1.5 percent, while Hong Kong's Hang Seng index fell 3.7 percent. Shares of airlines fell sharply across the region.

The Australian government announced Thursday a fiscal stimulus package worth around $11.4 billion, approximately 1.2 percent of GDP, to offset the impact on the domestic economy of the global coronavirus outbreak. The package is largely targeted at small and medium-sized businesses, lower-income households, and industries particularly impacted by the outbreak. The additional spending associated with the package is likely to derail the government's previous forecasts for the government budget to return to surplus in the current fiscal year but is not currently planned to extend beyond mid-2121.

Japan's producer price index rose 0.8 percent on the year in February, slowing from a revised increase of 1.5 percent in January. The slowdown in headline producer price inflation in February was mainly driven by energy prices, with petroleum and coal prices rising 1.6 percent on the year in February after advancing 9.0 percent in January. Food price inflation was relatively steady in February, with price changes for other major categories also generally stable.

India's consumer price index rose 6.58 percent on the year in February, down from 7.35 percent on the year in January and the first decline since July 2019. India's industrial production index rose 2.0 percent on the year in January, rebounding from a fall of 0.3 percent in December and the strongest growth since July 2019, though this largely pre-dated the global coronavirus outbreak. With concerns growing about the impact of the outbreak on the domestic economy, the fall in inflation reported today may help convince officials at the Reserve Bank of India that there is scope to ease policy further in order to support economic activity. The RBI's next policy review is scheduled to take place early April.

Looking ahead*

On Friday in Europe, German and French CPI figures are scheduled. In the US, import and export prices, and consumer sentiment reports are on tap.

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