May 14, 2020: Asian equities sank Thursday following another sell-off in New York after the head of the Federal Reserve warned of “lasting damage” to the economy from shutdowns caused by the coronavirus, compounding worries about the second wave of infections.
US accusations that Chinese hackers were trying to steal potentially lucrative COVID-19 vaccine research added to the downbeat mood across trading floors as a weeks-long market rally shows signs of coming to an end.
On top of that, the World Health Organization warned that the virus “may never go away”.
Fed chief Jerome Powell warned of a “highly uncertain” outlook for the world's top economy, adding that lawmakers might have to provide even more stimulus to the $3 trillion already stumped up.
“The coronavirus has left a devastating human and economic toll in its wake,” he said, warning that a deep, long recession “can leave behind lasting damage to the productive capacity of the economy”.
He said the central bank, which has already promised huge sums to backstop financial markets, “will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way”.
Congress should try to find other ways to provide support, adding that it “could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery”.
The bleak outlook came as traders were already having second thoughts about a rally that has seen many markets advance by about a quarter from their mid-March lows, which some observers had said was too much too quickly.
All three main indexes on Wall Street ended sharply down for a second successive day, and Asia followed suit.
Tokyo went into the break 0.6 percent lower, while Hong Kong, Sydney, Seoul, Singapore, Taipei and Manila all lost one percent or more.
Shanghai slipped 0.6 percent, Wellington dipped 0.2 percent while Jakarta was off 0.4 percent.
– Tense China-US relations –
Signs of an easing in the outbreak globally had led to hopes for a slow return to recovery but fresh infections in South Korea, China, Germany and other countries as they eased lockdowns have thrown a spanner in the works.
They came as Donald Trump's top virus expert warned against reopening too quickly, saying it could cause a second wave of infections and hurt any economic recovery.
Anthony Fauci's warning and “a combination of downbeat comments from… Powell together with a couple of hedge fund luminaries weighing in with bearish views on US equities have added to the malaise” on markets, said Ray Attrill of National Australia Bank.
China-US relations were strained further Wednesday after two US security agencies said hackers were trying to steal research and intellectual property related to treatments and vaccines. They did not, however, provide evidence to back up the claims.
The allegation comes as the relationship between the two countries grows increasingly tense after a series of rows linked to Trump's accusations over Beijing's handling of the outbreak, and threats to hit China with fresh tariffs that have renewed trade war fears.
The downbeat mood in equity markets was mirrored in foreign exchanges, where high-yielding, riskier currencies were down against the dollar, with the Australian dollar losing more than one percent and South African rand losing almost as much.
Oil prices were stable, however, as the lifting of quarantine measures fuel hopes for a pick-up in demand, while output cuts by major producers has helped ease a supply and storage crisis.
“As economies carry on with restarting activity — albeit at a measured pace — and OPEC shows a more significant commitment to supply discipline, oil prices will show further upside momentum,” said AxiCorp's Stephen Innes.
“But momentum will happen in fits and starts until there is at minimum some therapeutic solution for the virus.”
Crude prices have rallied this month, having collapsed last month as demand dried up and countries continued to pump.
– Key figures around 0300 GMT –
Tokyo – Nikkei 225: DOWN 0.6 percent at 20,138.45 (break)
Hong Kong – Hang Seng: DOWN 1.5 percent at 23,828.31
Shanghai – Composite: DOWN 0.6 percent at 2,880.67
West Texas Intermediate: DOWN 0.1 percent at $25.27 per barrel
Brent North Sea crude: DOWN 0.6 percent at $29.02 per barrel
Euro/dollar: DOWN at $1.0815 from $1.0816 at 2040 GMT
Dollar/yen: DOWN at 106.88 yen from 107.03 yen
Pound/dollar: DOWN at $1.2213 from $1.2233
Euro/pound: UP at 88.54 pence from 88.40 pence
New York – Dow: DOWN 2.2 percent at 23,247.97 (close)
London – FTSE 100: DOWN 1.5 percent at 5,904.05 (close)