Asia stocks slide as coronavirus fears return

Reuters New York | Updated on June 12, 2020 Published on June 12, 2020

MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.2 per cent

Asian shares fell sharply on Friday and oil prices extended losses on growing concerns that a resurgence of coronavirus infections could stunt the pace of recovery in economies reopening from lockdowns, or even lead to fresh restrictions.

MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.2 per cent, after a strong run-up in recent weeks. Australian stocks dropped 1.57 per cent, but shares in China erased losses to trade 0.03 per cent higher after Beijing's pledge to continue with capital market reforms.

US stock futures, the S&P 500 e-minis, rose 1.4 per cent in Asian time on Friday after tumbling overnight, but that did little to help sentiment.

Euro Stoxx 50 futures were down 0.6 per cent, German DAX futures fell 0.65 per cent, and FTSE futures were down 0.66 per cent.

Oil futures slumped for a second consecutive trading session due to worries about weak global energy demand, which boosted the safe-haven dollar.

The Chinese yuan headed for its biggest daily decline in two weeks, underscoring investors' risk-averse mood in Asia.

The US Treasury yield curve flattened, indicating a heightened sense of dread about the economic outlook is returning to financial markets.

“Fear has a nasty habit of feeding on itself,” analysts at Mizuho Securities wrote in a research note.

“So it is not hard to project a 'second bear wave' in markets from a 'second wave' of infections; as economies re-open, especially in markets that have rebounded ... in defiance of all the uncertainties that the world is beset with.”

The three major US stock indexes fell more than 5 per cent on Thursday, posting their worst day since mid-March, when markets were sent into freefall by the abrupt economic lockdowns put in place to contain the pandemic.

Japan's Nikkei stock index slid 0.75 per cent, and shares in South Korea fell 2.04 per cent as some investors booked profits from the recent rally in global equities, which saw riskier assets rally even as the number of global virus cases and deaths continued to rise.

Coronavirus cases have jumped in several US states in recent days, raising concern among experts who say authorities have loosened anti-virus restrictions too early.

Cases in New Mexico, Utah and Arizona rose by 40 per cent for the week ended Sunday, a Reuters tally shows. Florida and Arkansas are other hot spots.

The US Federal Reserve released a gloomy economic outlook at the end of its two-day monetary policy meeting on Wednesday. Chairman Jerome Powell warned of a “long road” to recovery.

Powell also said central bankers discussed yield curve control, which is a policy used in Japan and Australia to anchor part of the yield curve at very low level to support the economy.

“For (financial markets to outperform), we need the Fed to move further, especially along on its decision on implementing yield-curve control,” Jean-Louis Nakamura, Asia Pacific chief investment officer at Lombard Odier said in a memo.

“The longer the Fed waits, the higher the risk of the return of short term volatility on markets.”

The spread between two- and 10-year Treasury yields has narrowed to 48 basis points from a three-month high of 72 basis points reached last week as investors scale back their bets that the US economy will improve.

US crude slid 2.59 per cent to $35.40 a barrel, while Brent crude eased 2.31 per cent to $37.66 per barrel on Friday, hit by renewed concerns over demand and a large build-up of US crude inventories.

In the onshore market, the yuan fell 0.3 per cent, headed for its biggest daily decline since May 27.

The dollar also rose against the yen, boosted by safe-haven demand.


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Published on June 12, 2020
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