US stock futures and several Asian shares fell in choppy trade on Wednesday, as worries about the coronavirus pandemic eclipsed hopes broad policy support would combat the economic fallout of the outbreak.
Most traditional safe-haven assets were also under pressure as battered investors looked to unwind their damaged positions, leading to wide discrepancies between various markets.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3%, led by a 4.9% fall in Australia while Japan’s Nikkei gained 1.6%.
US stock futures fell 3% in Asia, a day after the S&P 500 rose 6% and Dow Jones rose 5.2% or 1,049 points.
“A rise of 1 000 points in Dow is something you see only during a financial crisis. It is not a good sign,” said Tomoaki Shishido, senior fixed income strategist at Nomura Securities.
“A rise of 100 points would much better for the economy.”
Wild swings in markets imply the capacity of various players, from speculators to brokerages, to absorb risks has been tormented, analysts say.
The increase in the S&P 500 futures the previous day, still down more than 10% so far this week, came as policymakers cobbled together packages to counter the impact of the virus.
The Trump administration on Tuesday unveiled a $1 trillion stimulus package that could deliver $1,000 cheques to Americans within two weeks to buttress an economy hit by coronavirus while many other governments look to fiscal stimulus.
“That would be bigger than a $787 billion package the Obama administration came up with after the Lehman crisis, so in terms of size it is quite big,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
“Yet stock markets will likely remain capped by worries about the spreading coronavirus,” he said.
Britain unveiled a 330 billion pounds ($400 billion) rescue package for businesses threatened with collapse while France is to pump 45 billion euros ($50 billion) of crisis measures into its economy to help companies and workers.
Still, forecasters at banks are projecting a steep economic contraction in at least the second quarter as governments take draconian measures to combat the virus, shutting restaurants, closing schools and calling on people to stay home.
The US Federal Reserve stepped in again on Tuesday to ease funding stress among corporates by reopening its Commercial Paper Funding Facility to underwrite short-term corporate loans.
“While markets react to positive news on stimulus, that doesn’t last long. I think there are a lot of banks and investors whose balance sheet was badly hit and they still have lots of positions to sell,” said Shin-ichiro Kadota, senior currency and rates strategist at Barclays.
Bond and currencies
The damage to markets was apparent in bond markets as well.
US Treasuries extended their losses, driving the benchmark 10-year yield to 1.009%. It hit a two-week high of 1.105% in the previous day, rising more than 30 basis points.
“The staggering thing is, bonds have fallen even as the Fed has been buying 40 billion dollars of bonds every day. That far outpaces the Fed’s previous episodes of quantitative easing and shows just how much selling pressure there is now,” said Nomura’s Shishido.
Some market players said talk of big stimulus is raising concerns about the long-term outlook of US fiscal health, putting pressure on lon g-term US government bonds.
The spread between 30-year and five-year yields rose to almost 1%, the highest since September 2017.
The US 30-year bonds yield jumped 38 basis points on Tuesday to 1.648%.
In the currency market, a shortage of dollar cash supported the US currency.
The Australian dollar bounced back to $0.6008 after having hit a 17-year low of low of $0.5958 the previous day.
The kiwi recovered to $0.5955 after hitting a 11-year trough of $0.5919.
The dollar held firm against most currencies but dipped 0.25% against the safe-haven yen to 107.28 yen.
The euro was steady at $1.1004.
US benchmark oil futures sank to near their 2016 trough of around $26 per barrel on prospects of slow demand and a Saudi-instigated price war.