Wall Street Heads For Heavy Losses As Global Coronavirus Cases Overtake China

Topline: Investors sold out of stocks despite the Federal Reserve’s shock rate cut as cases of the coronavirus in the United States topped 3,000.

• Dow Jones Industrial Average futures were down 1,041 points, 4.5%, as were Nasdaq futures. S&P 500 futures neared the 5% ‘limit down’ as it dropped 4.8%.
• The steep falls came despite the Federal Reserve announcing an emergency rate cut on Sunday effectively slashing interest rates to zero, while it pledged to purchase $700 billion in treasury bonds. The cut was the Fed’s first emergency rate cut outside schedule since the global financial crisis.
• But investors remain cautious after several cities in the United States woke up to shutdowns of many businesses, and the number of international cases of the coronavirus overtook those inside China, where the pneumonia-like virus was first detected.
• Shares in Asia followed a similar pattern, with mainland China’s Shanghai composite down 3.4% on Monday, despite the People’s Bank Of China introducing a raft of measures to boost local banks.
•  China’s retail sales plummeted 20.5% at the start of 2020, from the same period last year according to the National Bureau of Statistics—a far cry from the 0.8% rise analysts had hoped.
• In Europe, shares fell to lows last seen in 2012, while the pan-continental Stoxx 600 initially dropped 8.2%. It is now down by around 7.7%. Airlines and holiday operators took the biggest hit.
• London’s FTSE 100 slid more than 6% on Monday morning, following Trump’s extended travel ban, while Germany’s DAX plunged 7.4% and France’s CAC 40 was down almost 9%.

Crucial comment: Adam Vettesse, analyst at eToro, said in an email: “US stock futures show it has done very little to calm the nerves of investors, having already triggered the 5% limit down circuit breakers once again. Arguably such drastic measures have spooked the market rather than reassured it.

“The Fed and other Central Banks have now used the majority of the monetary policy stimulus available to them and now the onus is on the government to implement fiscal measures in order to stem the economic damage from the coronavirus outbreak.” 

Key background: Global markets have convulsed over recent weeks and recorded their worst performance since the 2008 financial crash, despite central banks around the world, cutting rates in a bid to cushion what the Fed chairman Jerome Powell called a “profound” impact of the coronavirus on the world’s economy. Interest rates in the United States and across the eurozone are effectively zero while the Bank of England cut base rate to 0.25% last week. Extreme measures around the world to contain the spread of the virus continue, with bars in major U.S. cities closing as well as Nike and Urban Outfitters stores, while Trump has extended his Europe travel ban to the U.K. and Ireland as confirmed cases rise across the continent.

What to watch for: The G7 club of the most economically developed economies will hold a call on Monday afternoon to discuss the impact of coronavirus.