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Stock Rout Continues, Bond Yields Set New Records

Monday 2nd March 2020

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Another painful session for global markets began Monday with a slump in equities and a slide in sovereign bond yields, as investors reacted to a much deeper decline in China’s manufacturing than expected, and the continued spread of the coronavirus.

Japanese stocks opened 1.3% lower, and S&P 500 futures slumped over 1%, with a signal from the Federal Reserve Friday that it’s open to easing policy providing little comfort. Australian and New Zealand 10-year yields set new record lows and Treasury yields slid to 1.11%. Moves did ease somewhat in currencies in early trading and oil erased its losses, while South Korean shares edged higher at the open.

The number of U.S. cases climbed over the weekend, while those in Italy and South Korea jumped. Deaths came in the U.S., Thailand and Australia. Japan woke up Monday to school closures and an increasing number of employers asking workers to stay at home.

Goldman Sachs Group Inc. economists now expect the virus to inflict a “short-lived global contraction” on the world economy that forces the Fed to slash rates in the first half. Fed Chairman Jerome Powell has opened the door to a rate cut, citing the “evolving risks” posed to the U.S. economy from the virus, in a rare statement issued Friday.

“Markets face significant uncertainty in the short term and remain at high risk of more downside given the unknowns around Covid-19,” said Shane Oliver, a global investment strategist at AMP Capital Investors Ltd. in Sydney. Concern remains that “it will disrupt economic activity more deeply and for longer than had been expected a week or so ago.”


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