Equities plunge as central bank moves fail to ease economy fears

Asian markets tumbled yesterday as interest rate cuts and fresh stimulus measures by central banks failed to lift confidence, with analysts warning that the Federal Reserve may have reached the limits of its power to fend off recession as the coronavirus spreads.

The Fed move added to efforts by central banks around the world to combat the outbreak, which observers say will likely cause a global recession.

The scale of the crisis was laid bare by data showing Chinese industrial production for January and February shrank 13.5 per cent, the first contraction in around 30 years.

Equity markets continue to be whipsawed by the disease, which has now infected almost 170,000 people and killed more than 6,000 with several countries going into lockdown as Europe becomes the new epicentre of the outbreak.

The Fed on Sunday slashed borrowing costs to almost zero — its second emergency cut in less than two weeks — and unveiled a massive asset-buying programme, similar to measures put into place during the global financial crisis.

The Bank of Japan yesterday unveiled a series of emergency monetary policy measures, saying it would ramp up its own bond-buying programme.

New Zealand’s central bank also slashed rates to record lows in an attempt to cushion the economic blow, while the People’s Bank of China has injected vast sums into financial markets to ease liquidity worries.

In joint action coordinated with the European Central Bank, Bank of England, Bank of Japan, Bank of Canada and the Swiss National Bank, the central banks moved to counteract global “dollar funding pressures”, said Fed boss Jerome Powell.

But traders were left unimpressed, with the virus showing no sign of letting up, while the head of the World Health Organization chief Tedros Adhanom Ghebreyesus said it was impossible to tell when it would peak globally.

“While these moves may go some way to easing any potential blockages in the plumbing of the financial markets, they won’t adequately compensate for the upcoming economic shocks that are about to come our way as a result of the events currently unfolding across Europe, as borders get closed and populations get locked down,” said CMC Markets analyst Michael Hewson.

Sydney led losses, tumbling 9.7 per cent in its worst drop on record, while Manila shed nearly eight percent and Bangkok and Mumbai dropped more than five per cent.

Hong Kong, Singapore, Taipei and Jakarta all lost more than four percent. Wellington and Seoul were more than three percent off.

Shanghai dropped tumbled 3.4 per cent after the release of the industrial production data, which came a week after news that Chinese exports had collapsed.

Tokyo ended 2.5 per cent lower, after a rally sparked by the Bank of Japan’s support measures announcement fizzled.

In early trade, London, Frankfurt and Paris all lost more than four percent.

The broad retreat follows a tumultuous week that saw some stock markets suffer their worst days in decades and in some cases their worst ever.

And experts said there was a concern that the Fed might be running on empty with regards to further action.

Sunday’s move “raises the question of whether the Fed has anything left in the tank should the spread of the virus not be contained”, said Kerry Craig at JP Morgan Asset Management.

 

Equities plunge as central bank moves fail to ease economy fears

Asian markets tumbled yesterday as interest rate cuts and fresh stimulus measures by central banks failed to lift confidence, with analysts warning that the Federal Reserve may have reached the limits of its power to fend off recession as the coronavirus spreads. The Fed move added to efforts by central banks around the world to combat the outbreak, which observers say will likely cause a global recession. The scale of the crisis was laid bare by data showing Chinese industrial production for January and February shrank 13.5 per cent, the first contraction in around 30 years. Equity markets continue to be whipsawed by the disease, which has now infected almost 170,000 people and killed more than 6,000 with several countries going into lockdown as Europe becomes the new epicentre of the outbreak. The Fed on Sunday slashed borrowing costs to almost zero its second emergency cut in less than two weeks and unveiled a massive asset-buying programme, similar to measures put into place during the global financial crisis. The Bank of Japan yesterday unveiled a series of emergency monetary policy measures, saying it would ramp up its own bond-buying programme. New Zealands central bank also slashed rates to record lows in an attempt to cushion the economic blow, while the Peoples Bank of China has injected vast sums into financial markets to ease liquidity worries. In joint action coordinated with the European Central Bank, Bank of England, Bank of Japan, Bank of Canada and the Swiss National Bank, the central banks moved to counteract global dollar funding pressures, said Fed boss Jerome Powell. But traders were left unimpressed, with the virus showing no sign of letting up, while the head of the World Health Organization chief Tedros Adhanom Ghebreyesus said it was impossible to tell when it would peak globally. While these moves may go some way to easing any potential blockages in the plumbing of the financial markets, they wont adequately compensate for the upcoming economic shocks that are about to come our way as a result of the events currently unfolding across Europe, as borders get closed and populations get locked down, said CMC Markets analyst Michael Hewson. Sydney led losses, tumbling 9.7 per cent in its worst drop on record, while Manila shed nearly eight percent and Bangkok and Mumbai dropped more than five per cent. Hong Kong, Singapore, Taipei and Jakarta all lost more than four percent. Wellington and Seoul were more than three percent off. Shanghai dropped tumbled 3.4 per cent after the release of the industrial production data, which came a week after news that Chinese exports had collapsed. Tokyo ended 2.5 per cent lower, after a rally sparked by the Bank of Japans support measures announcement fizzled. In early trade, London, Frankfurt and Paris all lost more than four percent. The broad retreat follows a tumultuous week that saw some stock markets suffer their worst days in decades and in some cases their worst ever. And experts said there was a concern that the Fed might be running on empty with regards to further action. Sundays move raises the question of whether the Fed has anything left in the tank should the spread of the virus not be contained, said Kerry Craig at JP Morgan Asset Management.