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U.S. Stocks Decline After Powell Virus Warning

Wednesday 4th March 2020

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U.S. stocks dropped and Treasuries surged as investors worried the Federal Reserve’s emergency cut won’t be enough to combat the economic impact of the coronavirus.

The S&P 500 headed for its eighth drop in nine days following the Federal Reserve’s 50 basis-point cut of its benchmark rate. Fed chair Jerome Powell said during a press conference that the U.S. economy remains strong but the virus outbreak will weigh on activity “for some time.”

The two-year Treasury yield sunk to 0.72%, while the 10-year plunged below 1% for the first time ever. Banks led losses on equity benchmarks.

“Does a 50 basis point cut change things? That’s a tough one to answer,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “Fed cuts tend to be less effective in situations like this when there is a supply and demand shock.”

Investors had piled out of risk assets last week as the spreading virus threatened to derail global growth, only to pour back in Monday in anticipation of concerted action from Group of Seven officials. Oil pared its rebound Tuesday, approaching $46 a barrel, while gold rose. The yen was higher versus the dollar.

The OECD warned that growth will sink to levels not seen in more than a decade and ever more businesses are warning about the impact of the illness.

The governor of the Bank of England, Mark Carney, said it would take all necessary steps to help the economy. Australia lowered its benchmark by a quarter percentage point. Its currency rose, however, underscoring how traders’ expectations have rapidly shifted in recent days.

(Bloomberg)


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