By Avantika Chilkoti and Frances Yoon
Global stocks fell Wednesday after President Trump issued a
stark new warning on the spread of the novel coronavirus in the
U.S., reviving concerns about the potential damage to the world's
largest economy.
The Dow Jones Industrial Average dropped 4%, or 881 points,
suggesting that blue-chip stocks could fall in the first day after
their worst-ever first quarter. The S&P 500 receded 3.8%, while
the Nasdaq Composite Index declined 3%.
European stocks also fell, with the pan-continental Stoxx Europe
600 index retreating 3.3%.
Mr. Trump warned that the U.S. could face as many as 240,000
deaths as he asked Americans to brace for an unprecedented crisis
in the days ahead. The nation has more confirmed cases than any
other country, with more than 189,000 infections, and projections
from the University of Washington show the illness could result in
2,214 deaths a day at the peak in two weeks.
"We're slowly peering through the fog and trying to see how bad
things will become, but essentially we are flying blind," said
Peter Dixon, a senior economist at Commerzbank. "It's very clear
this is going to be the biggest sudden stop in measured history:
the economy is just going to hit the buffers."
As investors turned to assets that are perceived to be the
safest, the yield on the 10-year U.S. Treasury note ticked down to
0.611%, from 0.691% Tuesday. Yields drop as bond prices climb.
The ICE Dollar Index, which tracks the dollar against a basket
of currencies, ticked up 0.7% after the Federal Reserve took fresh
steps to alleviate the stress in currency markets. On Tuesday, the
Fed said it would launch a temporary lending facility that would
allow foreign central banks to convert their holdings of Treasury
securities into dollars.
In recent weeks, the rush for the exits in U.S. government bond
markets has included heavy selling by foreign investors, with
overseas holdings of U.S. assets tumbling by $100 billion to $2.9
trillion in a matter of weeks.
"It seems the most acute phase of that is now behind us, but
there are other investors who want to reduce their Treasury
positions," said Mark Cabana, head of U.S. rates strategy at Bank
of America Global Research.
Ahead of the opening bell in New York, Marriott International
dropped almost 7%. On Tuesday, the hotel chain said it is
investigating a data breach that exposed up to 5.2 million
customers' personal information in what is at least the third cyber
incident for the group in 18 months.
In commodities, Brent crude, the global oil benchmark, dropped
4.4% to $25.18 a barrel after an agreement between major
oil-producing nations limiting the output lapsed overnight. Saudi
Arabia is preparing to flood oil markets as early as Wednesday as
the kingdom forges ahead with a price war with Russia. Brent crude
has plunged roughly 62% so far this year.
In Europe, banks and finance companies were among the worst
performing stocks. The U.K.'s biggest lenders said late Tuesday
that they would shore up capital by canceling or delaying dividend
payments amid concern about their ability to absorb a potential
rush of bad loans as households and companies are impacted by the
pandemic. Dividends and share buybacks have been a main driver of
banking stocks across the region in recent years.
Shares in HSBC Holdings tumbled 9.1%, the most since March 2009,
while Standard Chartered fell 8.5%. Barclays, Lloyds Banking Group
and Royal Bank of Scotland Group also retreated. The Bank of
England's request to the lenders to cancel the payouts followed a
similar ban from the European Central Bank on Friday.
The euro stumbled almost 1% against the U.S. dollar. A series of
business surveys released Wednesday showed that factories across
Asia and Europe cut output and jobs at the fastest pace since the
global financial crisis. The figures painted an almost uniform
picture of sharply declining production, falling new orders and
contracting payrolls.
The main exception was China, which saw a slight rebound in
activity as its economy began to thaw out, having been the first to
be frozen.
In Asia, Japan's Nikkei 225 lost 4.5% and Hong Kong's Hang Seng
closed 2.2% lower. Meanwhile, Australia's ASX 200 gained 3.6%.
Later in the day, the Institute for Supply Management's March
manufacturing survey could provide clues about how disruptions to
supply chains and business shutdowns are affecting manufacturing
activity in the U.S.
U.S. lawmakers have already passed three major pieces of
legislation to keep the virus outbreak from throwing the economy
into the deepest downturn since the Great Depression, while the Fed
slashed its benchmark interest rate to near zero.
"In the U.S., we're at the beginning of a downturn," said Steven
Englander, global head of G-10 foreign-exchange research and North
America macro strategy at Standard Chartered Bank. "We're likely to
see more unemployment, and the early bottom could come in May, but
that is very speculative. For that to happen, we need a lot of good
luck and serious implementation of economic and health-care
policy."
While stimulus packages are good for the economy, and would help
American employees get through the next two months, there might be
a need for "trillions more," Mr. Englander said. On Tuesday, Mr.
Trump called for a new infrastructure-focused spending bill worth
$2 trillion.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com and
Frances Yoon at frances.yoon@wsj.com
(END) Dow Jones Newswires
April 01, 2020 09:47 ET (13:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.