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Stocks drop as virus recovery begins to look distant

Economy May 14, 2020 01:40AM ET
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© Reuters. A man wearing a protective mask is seen inside the Shanghai Stock Exchange building, as the country is hit by a new coronavirus outbreak, at the Pudong financial district in Shanghai
 
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By Tom Westbrook

SINGAPORE (Reuters) - Stock markets fell and bonds were in demand on Thursday as worries grew about a second wave of coronavirus infections and a dour assessment from the head of the U.S. Federal Reserve dashed hopes for a quick economic recovery.

"The path ahead is both highly uncertain and subject to significant downside risks," Fed Chair Jerome Powell said in a webcast speech.

He warned of a recession worse than any since World War Two, and called for additional fiscal spending to stem the fallout from the pandemic - a pointed comment from a central banker who has avoided giving advice to elected officials.

New outbreaks in South Korea and China were cause for concern, even as more countries begin to re-open their economies after lengthy lockdowns.

European stock futures were down, and every market in Asia fell. Bonds and the dollar held ground won overnight.

FTSE futures (FFIc1) and EuroSTOXX 50 futures (STXEc1) dropped about 0.5%, while futures for the S&P 500 (ESc1) struggled to lift much above flat.

MSCI (NYSE:MSCI)'s broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) fell 1%.

"We don't think the market is going to re-test the lows, but it's probably seen its best also, so I'm expecting a correction," said Tony Huntley, chief investment officer at Melbourne-based fund manager Adansonia Capital.

"The issue is whether we get a second wave (of infections) ... that would be my greatest fear."

China has re-imposed movement restrictions near its borders with North Korea and Russia after a new outbreak was detected there and South Korea is working to contain an outbreak centred around bars and nightclubs in Seoul.

"It is important to put this on the table: this virus may become just another endemic virus in our communities, and this virus may never go away," WHO emergencies expert Mike Ryan told an online briefing on Wednesday.

Bonds and the dollar rallied after Powell talked down the prospect of negative interest rates in the United States, and extended gains on Thursday. Yields on benchmark U.S. 10-year Treasuries (US10YT=RR) fell slightly to 0.6395%.

A surprise drawdown of U.S. inventories helped oil prices make meagre gains, but the bleak outlook capped rises.

Gold pulled back from a one-week high hit early in the Asian session, but held comfortably above $1,700 an ounce at $1,711.20.

Markets are looking ahead to the release of the European Central Bank's latest economic bulletin at 0800 GMT and the latest U.S. jobless claims data at 1230 GMT.

SLOW GOING

Equity markets have wavered since April's rally as investors and authorities try to weigh the risks of re-starting economies quickly against the financial ruin that lockdowns have wrought, while worrying about a flare-up infections.

Australian jobless data bought the latest sign of doom, with a record plunge in employment dragging the currency to a one-week low of $0.6420.

Already bleak expectations and strong demand for Aussie bonds kept it from steeper falls.

In the United States, the Trump Administration is pressing on with re-opening plans despite urgings of caution from medical experts.

"We're going to slowly open the economy," U.S. Treasury Secretary Steven Mnuchin told Fox News on Wednesday.

"But there is also a risk that we wait too long, there is a risk of destroying the U.S. economy and the health impact that that creates."

Caution is also prevailing in Europe and the Antipodes, where restrictions are beginning to relax.

"Global markets are still licking their wounds, and while equities remain robust, gains are slowing," said Societe General FX strategist Olivier Korber.

"A second pandemic wave is unfortunately not a tail risk, so the full extent of the economic damage may be underestimated," he said, recommending a long position in euro/kiwi (EURNZD=) which has gained nearly 9% this year as market volatility has increased.

Elsewhere a strong greenback pushed the kiwi to a three-week low of $0.5968 and had the euro and pound under pressure.

Brent crude (LCOc1) firmed slightly to $29.36 per barrel and U.S. crude (CLc1) was up 1% at $25.58 per barrel.

Stocks drop as virus recovery begins to look distant
 

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Comments (18)
Cousin Vinny
Cousin Vinny May 14, 2020 8:12AM ET
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Reuter’s - enough said.
Tre Hsi
Tre Hsi May 14, 2020 8:12AM ET
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yes keep watching FoxNews and be outraged about Obamagate and Biden ******scandal, don't worry your little head about things like 80k americans died from this liberal media hoax virus or the recession made up by the like of Reuter, just trust Trump to continue Making America Poor, I mean White, no I mean Great, Again
Rad Nine
Rad Nine May 14, 2020 4:44AM ET
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No matter how long we separate, there is no cure so of course there will be flareups. The whole point of social distancing is to allow people to be able to get medical attention if they need it without the hospitals being so full they can't get help. Most hospitals are empty now and people are dying from heart attacks at home. Be sensible in public, wear a mast, wash hands, avoid large groups, get medical help if needed, but time to get back to work.
Evgeny Zakharov
Evgeny Zakharov May 14, 2020 3:20AM ET
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Like “recovery” could look somewhat different. There’ll be many waves and we need to get used to it
Evgeny Zakharov
Evgeny Zakharov May 14, 2020 3:20AM ET
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And adapt to it, of course, masks, distancing, etc. but NOT shut down the planet every time
Mike Studer
MikeStuder May 14, 2020 3:20AM ET
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My words. We have to learn to live with Corona, as we learned to live with Influenza. The hunt for a vaccine is interesting for the science but remember, ppl do still die of Influenza, even we have not only one but many vaccines.
Evgeny Zakharov
Evgeny Zakharov May 14, 2020 3:20AM ET
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Mike Studer it’s also interesting for corps, they make HUGE money on vaccines (not all of them, but some, seasonal) and pump it through health-insurance, so they look like “free” for regular people
Mike Studer
MikeStuder May 14, 2020 3:20AM ET
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Evgeny Zakharov  Sure but its nothing to invest into right now (except as a news day trader) as 1 or 2 might be successful, while the rest will just have burned a lot of cash for research & develop.
SH Parker
SH Parker May 14, 2020 3:18AM ET
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Look at the "DATA" not narative of Reaters.  The New Cases of Corona Virus is decreasing or has decreased in most of the countries
Paul Dunne
Paul Dunne May 14, 2020 3:11AM ET
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BEGINS to look distant? Don't read social media; read the medical journals.
Charles Kao
ckao May 14, 2020 2:33AM ET
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Nobody really wants to talk or think what the economy will be if Covid persists.  That's a real issue.
steven gitt
steven gitt May 14, 2020 2:04AM ET
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yes how will we ever recover from a virus that has kiiilled less people than the common fllu this year, and 10% of the people who have diieed from motor vehicle accidents. we better all start living in feaar because mankind has never before seen a transmissible diseaase.
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Evgeny Zakharov
Evgeny Zakharov May 14, 2020 2:04AM ET
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can’t agree more... we magically stopped diiing from regular deseases, just from this new one
John Mars
John Mars May 14, 2020 2:04AM ET
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The year isn't over bozo.
Paul Hodges
Paul Hodges May 14, 2020 2:04AM ET
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steven gitt  Sounds about right, anything that doesn't stick to establishment narratives is either deleted or censored. That's where we are in 2020 and it's getting worse by the miniute
Robert Egan
Robert Egan May 14, 2020 2:04AM ET
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might want to fact check yourself. 25k-60k deaths from October to April. 85k deaths from covid already. we shouldn't be scared, but yes, it's pretty *******serious
Tre Hsi
Tre Hsi May 14, 2020 2:04AM ET
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"yes how will we ever recover from a virus that has kiiilled less people than the common fllu this year, and 10% of the people who have diieed from motor vehicle accidents."  --- did you make up all these all on your own or did you copy them from some other internet fringe sites?
steven gitt
steven gitt May 14, 2020 1:59AM ET
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no criticizing democrats allowed here it seems. obey your globalist overlords. cannot post a simple comment in response to the article because of their laundry list of censored words. feel free to insult trump all you want though, they have no problem approving that.
steven gitt
steven gitt May 14, 2020 1:56AM ET
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dont expect to get any legitimate information from this site considering how heavily censored they are
steven gitt
steven gitt May 14, 2020 1:53AM ET
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democrats have set expectations that they will not reopen things until no more COVID-1984 deatths. that is not even a realistic expectation for the common flu. time to vote these destructiive and anti-american lunaattics out of office. all the anti-trumpers and democrats on this site are wishing economic collapse and fearmongering, so who could support such evil people.
 
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