Donald Trump. File
Stock markets tumbled across the globe and oil prices slumped Thursday after President Donald Trump banned all travel from mainland Europe to the United States for a month to fight the coronavirus pandemic, ramping up fears of worldwide recession.
With the market panic having already wiped away more than $11 trillion in global value, the head of the World Health Organization said the COVID-19 outbreak “is a controllable pandemic” if countries stepped up measures to tackle it.
“We are deeply concerned that some countries are not approaching this threat with the level of political commitment needed to control it,” WHO director-general Tedros Adhanom Ghebreyesus told diplomats in Geneva, according to a statement.
Following an overnight slump, Sydney tumbled 7.4 percent Thursday to suffer its worst session since the 2008 global financial crisis.
Tokyo closed down 4.4 percent, putting it in a bear market after slumping more than 20 percent from a recent high.
Hong Kong shed 3.7 percent, though Shanghai was off 1.5 percent as China continues to see infection rates slow.
Manila crashed nearly 10 percent -- sparking a brief trading halt -- after it emerged Philippines President Rodrigo Duterte would undergo a precautionary test for the virus.
In the Gulf, Saudi dumped 3.0 percent in value. “Taking the view that the president’s travel ban has only further heightened the likelihood of a global recession... investors fled,” said Connor Campbell, market analyst at Spreadex trading group.
The carnage on stock markets spread to Europe, with losses accelerating in Paris and Frankfurt, which both fell more than 10 percent after the ECB unveiled a series of measures to shore up the eurozone economy, but it did not lower interest rates like central banks elsewhere.
The European Central Bank ramped up its super-cheap bank lending programme, vowing to “support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises”, as well as spend an additional 120 billion euros ($135 billion euros) this year buying up government and corporate bonds.
On Wall Street, the stocks resumed their slide lower. The Dow tumbled 7.4 percent in the first minute of trading, having fallen 5.9 percent on Wednesday.
“The crux of the matter ... is that all of the efforts being made to curtail the spread of the coronavirus are going to produce negative economic outcomes that will weigh far and wide on earnings prospects since they are also curtailing consumer and business spending,” said market analyst Patrick J. O’Hare at Briefing.com
“Travel restrictions equal slower global economic activity, so if you need any more coaxing to sell... after a massively negative signal from trading in US markets it just fell in your lap,” said AxiCorp’s Stephen Innes.
The coronavirus outbreak has left virtually no sector untouched, though travel and tourism have been particularly hard-hit as countries institute travel bans and quarantine requirements, with Italy in a country-wide lockdown.
The coronavirus market crash has wiped off $11.3 trillion from global valuations as of the end of Wednesday, according to Howard Silverblatt, a senior analyst at S&P Dow Jones Indices.
The number of coronavirus cases across the globe has risen to more than 126,000 with 4,600 deaths, according to Johns Hopkins University.
Elsewhere Thursday, oil prices were hammered, with benchmark Brent North Sea crude losing more than seven percent, as the travel restrictions will further dampen energy demand.
“We are now staring at the whole world going into a lockdown,” Vandana Hari, of Vanda Insights, said. “Oil demand can be expected to crash through the floor and all previous projections on oil consumption are now out the door.”
The oil market was already under pressure after Saudi Arabia and Gulf partner UAE stepped up a price war on Wednesday by unveiling plans to flood global markets. Liquidity in the US $17 trillion Treasury market has deteriorated to the degree that the Federal Reserve or U.S. Treasury Department may need to start new programs to buy the debt, or risk large scale liquidation of the bonds, a Bank of America strategist said on Thursday.
Investors this week have said that it has been unusually difficult to trade Treasuries and that the spread between the cost of buying and selling bonds has widened dramatically, making them more expensive to trade.
On Wednesday, Treasury yields on long-dated bonds rose even as stock markets plunged, which Bank of America sees as an additional warning signal, as safe-haven assets should typically rally during such a large equity decline.
“In a risk-off environment it would be expected to see (Treasury) yields decline; yields appear to have been overwhelmed by liquidity concerns yesterday,” strategist Mark Cabana said in a report.
If illiquidity in the market persists some market participants including leveraged investors, who are large buyers of bonds, may be unable to hold on to the debt and that could lead to a chain of widespread selling, Cabana said.
A popular strategy by these investors is to buy Treasuries and hedge the debt with interest rate futures. This is profitable because the Treasuries trade at cheaper levels than futures.