HONG KONG: 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 a 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 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 US$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 underway”.
Congress should try to find other ways to provide support, he said, 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, Shanghai, Hong Kong, Taipei, Singapore and Bangkok all fell 1% or more, while Mumbai was off more than 2%. Seoul eased 0.8% and Jakarta was 0.9% lower.
Sydney dropped 1.7% after data showed almost 600,000 Australians lost their jobs in April and Prime Minister Scott Morrison warned of further economic pain to come.
Wellington’s losses were shallower as the New Zealand government unveiled a US$30 billion budget to support the economy.
In early trade, London, Paris and Frankfurt all sank.
“The likelihood of a V-shaped recovery has been a long shot for quite some time now, and the only surprise is that it’s taken markets so long time to cotton on to what has been quite a high probability in any case,” said CMC Markets analyst Michael Hewson.
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 re-opening too quickly, saying it could cause a second wave of infections and hurt any economic recovery.
Scientist 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 unit losing more than 1% and South African rand almost as much.
Oil prices climbed more than 2%, however, as the lifting of quarantine measures fuels hope for a pick-up in demand, while output cuts by major producers 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.”
Sentiment was also buoyed by the International Energy Agency saying the easing of lockdown measures and output cuts had helped the crude market after “Black April”, when prices collapsed as demand dried up and countries continued to pump.