SINGAPORE (Reuters) – Stocks decline and bonds were in demand on Thursday, as concerns rose over a 2nd wave of Covid-19 cases and a dour forecast from the head of the U.S. Fed have shattered expectations for a fast economic rebound.
Fed Chairmain Jerome Powell said in a webcast speech that the way ahead is very unstable as well as a target to special downside risks.
He cautioned of a crisis stronger than any since the Second World War and advocated for increased monetary stimulus to mitigate the effects of the pandemic. The central banker’s comment was noticeable as he usually avoided providing advice to elected officials.
New outbreaks in South Korea and China have become a cause for alarm, just as more countries are beginning to re-open their markets after lengthy lockdowns.
Europe’s stocks’ future decline and every market in Asia has fallen. Bonds and the dollar holding the ground won the night.
FTSE futures (FFIc1) and EuroSTOXX 50 futures (STXEc1) have fallen by around 0.5 percent, while S&P 500 (ESc1) futures have failed to climb well above the flat.
The largest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) of MSCI (NYSE: MSCI) dropped 1%.
Tony Huntley, chief investment officer at Melbourne-based fund manager Adansonia Capital expects a second wave of the pandemic and doesn’t believe the market is going to re-test the lows, but it’s probably seen its best also, so a correction is bound to happen.
China has re-imposed restrictions on movement near its borders with North Korea and Russia after a new outbreak has been detected there and South Korea is working to contain an outbreak focused around Seoul pubs and nightclubs.
WHO emergencies expert Mike Ryan told in an online briefing on Wednesday that it is important to bear in mind that the coronavirus may become just another endemic virus, and may never go away.
Bonds and the dollar came together after Powell spoke about the possibility of low interest rates in the United States and increased gains on Thursday. Benchmark yields for U.S. 10-year treasuries (US10YT = RR) decreased marginally to 0.6395 percent.
Surprisingly, the withdrawal of U.S. inventories helped oil prices make meager gains, but the gloomy outlook capped up.
Gold pulled back from a one-week high hit early in the Asian session, but kept well above $1,700 an ounce at $1,711.20.
Markets are looking forward to the release of the latest Economic Bulletin of the European Central Bank at 0800 GMT and the latest U.S. jobless claims data at 1230 GMT.
Equity markets have wavered since the April recovery, as creditors and regulators are seeking to rapidly weigh the risks of re-starting economies against the financial disaster that lockdowns have caused. While worried about flare-up outbreaks.
Australian unemployment statistics brought the next sign of gloom. The historic decline in jobs pulling the currency to a one-week low of $0.6420.
Already gloomy forecasts and a solid appetite for Aussie bonds prevented it from dropping sharply.
In the U.S., the Trump administration is pressing for plans to be reopened despite calls for caution from medical experts.
U.S. Treasury Secretary Steven Mnuchin told Fox News on Wednesday that we’re going to slowly open the economy. There is also a risk that if we wait too long, we will destroy the U.S. economy.
Caution also prevails in Europe and the Antipodes, where controls are starting to ease.
Global markets are still licking their wounds. While equities remain robust, gains are slowing, Societe General FX strategist Olivier Korber stated.
He said a 2nd pandemic wave is unfortunately not a tail risk, so the full extent of the economic damage may be underestimated. While Korber also recommended a long position in euro/kiwi (EURNZD) which has gained nearly 9% this year as market volatility has increased.
Elsewhere, a solid greenback sent the kiwi to a three-week low of $0.5968 and brought the euro and the pound under control.
Brent crude (LCOc1) was marginally firmed at $29.36 per barrel and U.S. crude (CLc1) was up 1% at $25.58 per barrel.