The Monday Market Minute
- Global stocks plunge after emergency Fed rate cut underscores economic weakness, with more pain to come, from the coronavirus pandemic.
- Fed slashes benchmark rate by 1% to a range of 0% to 0.25%, matching the lowest on record, after an emergency Sunday meeting.
- Central banks in Japan, New Zealand and Australia follow suit with rate cuts or liquidity support, capping decline for the US dollar.
- European stocks fall to 2012 lows as travel and leisure stocks dive, while Asia hits the lowest since 2017.
- U.S. stocks hit 'limit down' levels shortly after the opening bell and resume declines when trading resumed, with the Dow last down more than 2,100 points.
Global stocks plunged Monday, while U.S. stocks hit 'limit down' levels at the start of trading, as investors reacted to an emergency rate cut from the Federal Reserve and came to terms with the extent of the economic damage wrought by the coronavirus pandemic.
The Fed slashed its benchmark lending rate by a full 1% Sunday to a range of 0% to 0.25%, matching the record low last seen during the peak of the global financial crisis in 2008.
The Fed Funds rate now sits in a range of between 0% and 0.25% after the surprise 100 basis point cut, which comes just two days before the Fed's scheduled two-day policy meeting on March 17. The central bank also said it would re-start its quantitative easing program, with at least $700 billion in new bond and mortgage backed securities purchases over the coming weeks.
Several other central banks around the world followed suit Monday, with the Bank of Japan ramping up its asset purchase program, the Reserve Bank of Australia providing further liquidity injections and the Bank of New Zealand cutting its benchmark rate by 75 basis points to 0.25%.
The moves failed to steady investor nerves in the face of the rapidly-spreading coronavirus, which has infected more than 156,000 people around the world -- from an original 39 in the Chinese city of Wuhan on January 8 -- and caused at least 5,800 deaths.
From an economic point of view, the damage is yet to be calculated, although data from China today indicated the steepest falls on record for both industrial output and retail sales over the first two months of the year, and Goldman Sachs is predicting a U.S. recession with a second quarter GDP contraction of around 5%.
With that grim picture in focus, and investors driving cash into safe-haven assets, U.S. equity futures remained 'limit down' in early pre-market trading while European stocks fell to levels last seen during the region's debt crisis in 2012.
All three U.S. benchmarks were suspended for 15 minutes after hitting "level 1" circuit breaker levels shortly after the opening bell, with the S&P 500 plunging 8%, or 220.55 points to 2,490.47 points. The Dow Jones Industrial Average fell 9.71%, or 2,250.46 points, to 20,933.16 points while the Nasdaq tumbled 6.12%, or 482.15 points, to 7,392.7 points.
The Dow fell further once trading resumed at 9:45 am Eastern time, plunging 11.05%, or 2547 points, while the S&P tumbled 10.6%, or 286.81 points.
The Stoxx 600 Europe index plunged 8.9% in Frankfurt trading, to hit the lowest levels since 2012, lead to the downside by travel and leisure stocks as well as basic materials and energy sector assets, while the FTSE 100 fell 7%, to trade under the 5,000 point mark, as the pound slumped to 1.2244 against the U.S. dollar.
In Asia trade, the safe-haven yen rose 1.8% against the U.S. dollar to 105.97 while the U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.63% lower at 98.11.
Benchmark 10-year Treasury notes, meanwhile, rallied by 32 basis points to 0.6401% before easing to 0.765% while 2-year notes were pegged 17 basis points lower at 0.338%.
Brent crude futures contracts for May delivery, the global benchmark, were last seen $4.15 lower from their Friday close in New York and trading at $29.70 per barrel, while WTI contracts for April delivery were marked $3.19 cents lower at $28.54 per barrel.
Overnight in Asia, the region's broadest measure of shares, the MSCI ex-Japan benchmark, slumped 5% to the lowest levels since early 2017 while the Nikkei 225 fell 2.5% to end the session at 17,002.04 points.