‘Race to the bottom’: Stocks drop, dollar soars as coronavirus fears overpower stimulus efforts

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  • Stocks dropped and the US dollar soared on Thursday as coronavirus fears overpowered stimulus efforts.
  • The European Central Bank unveiled a bond-buying program worth 750 billion euros, or $US814 billion, on Wednesday.
  • President Donald Trump signed a coronavirus relief bill into law, expanding unemployment insurance and granting sick leave to hourly employees.
  • However, volatile markets and fears of a global credit crunch drove investors to US dollars, pushing the British pound to a 35-year low.
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Stocks dropped and the US dollar soared on Thursday as investors doubted central banks and governments would succeed in stopping the novel coronavirus from choking the global economy.

Late Wednesday, the European Central Bank announced it would spend 750 billion euros, or $US814 billion, buying private and public bonds.

“Extraordinary times require extraordinary action,” ECB President Christine Lagarde said, emphasising that there were “no limits” to her commitment to the euro.

The massive stimulus comes after the Federal Reserve cut interest rates to near zero last Sunday, and committed to spending hundreds of billions on asset purchases. President Donald Trump also signed a coronavirus relief bill into law on Wednesday that expands unemployment insurance and grants sick leave to hourly employees. Congress now turns its focus to a $US1 trillion stimulus package that includes support for the airline industry and direct payments to Americans.

Coronavirus – which causes a flu-like disease called COVID-19 – has infected more than 218,000 people, killed at least 8,800, and spread to upwards of 150 countries. It has disrupted global supply chains, forced governments to temporarily close businesses such as bars and restaurants, and hammered demand as consumers stay home to reduce transmission.

Jittery investors, wary of volatile markets and a global credit crunch, took shelter in US dollars on Thursday. The demand surge pushed the ICE US Dollar Index, which weighs the greenback against a basket of six other major currencies, to its highest level since January 2017.

Moreover, the British pound slumped below 1.16 to the dollar – a 35-year low – as Prime Minister Boris Johnson announced schools would close until further notice from Friday, and news outlets reported a London lockdown is on the cards.

“The US dollar is shoving a sharp spike through all other currencies,” Michael Every, senior Asia-Pacific strategist at RaboResearch, said in a research note. The global economy runs on dollar debt, he added, meaning no one can “stand in the way of that armour-plated steamroller.”

Markets showed signs of relief early Thursday, but analysts warned the sell-0ff could continue.

“Despite heavy losses, we do not rule out the possibility of a deeper bear market,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a morning note.

“Equities’ race to the bottom continues at full speed,” she added.

Here’s the market roundup as of 10:50 a.m. in London (6:50 a.m. in New York):

  • European equities broadly fell, with Germany’s DAX down 1% and Britain’s FTSE 100 down 1.6%. The Euro Stoxx 50 rose 0.2%.
  • Asian indexes dropped, with China’s Shanghai Composite down 1%, Hong Kong’s Hang Seng down 2.5%, South Korea’s KOSPI down 8.4%, and Japan’s Nikkei down 1%.
  • US stocks are set to fall. Futures underlying the Dow Jones Industrial Average and the S&P 500 were down about 1.6%, while Nasdaq futures fell 0.6%.
  • Oil prices rebounded, with West Texas Intermediate up 11.3% at $US23.20 a barrel and Brent crude up 5.8% at $US26.30.
  • The benchmark 10-year Treasury yield fell to 1.16%.
  • Gold fell 0.1% to $US1,476.
  • Bitcoin climbed about 6% to around $US5,600.