U.S. Stocks Pare Drop; Treasuries Remain Higher: Markets Wrap

(Bloomberg) -- Fear over the economic fallout from the spreading coronavirus continued to roil global markets, sending U.S. equities to a seventh straight loss and sparking demand for safe assets from Treasuries to the yen.

The S&P 500 plunged as much as 4% before cutting that decline by three-quarters heading into the afternoon. Trading has been volatile all week, with the Cboe gauge of swings spiking above 40. The index remains on track for its worst week since 2008 and is mired in its longest slump in over three years. The Nasdaq indexes erased losses to briefly trade higher.

Treasury yields bounced off of all-time lows, though the two-year remained below 1%. Crude hit $45 a barrel, while gold tumbled the most intraday since June 2013. European shares hit August lows.

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U.S. equity markets shuddered as the World Health Organization raised its global risk level for the virus and a White House official suggested some schools could close. More major companies warned that disruptions could upend sales and profit forecasts. Germany quarantined about 1,000 people and Switzerland banned large events, leading to the Geneva car show being canceled. Iran and South Korea revealed more infections while the first cases appeared in Mexico and Nigeria, Africa’s most populous country.

“Investors are selling stocks first and asking questions later,” Keith Lerner, SunTrust’s chief market strategist, wrote in a note. “We are seeing signs of pure liquidation. ‘Get me out at any cost’ seems to be the prevailing mood. There is little doubt the coronavirus will continue to weigh on the global economy, and the U.S. will not be immune. There is much we do not know. However, it is also premature to suggest the base case for the U.S. economy is recession.”

Downgrades to the global outlook keep rolling in and money markets now see three Federal Reserve interest-rate cuts this year. Bank of America (NYSE:BAC) predicted that the global economy will see its weakest year since the financial crisis as the virus damages demand in China and beyond.

“Asset prices diverged significantly from growth in the past year, in part because of central bank policy, but also because passive investment’s main signal is price action,” reckons James McCormick (NYSE:MKC), global head of desk strategy at NatWest Markets. “The COVID-19 escalation runs a real risk of virtuous cycle turning to a vicious one. Either way, given where growth estimates are heading for the next few months, I’d expect more downside.”

Amid the hunt for havens, the yen is on course for its biggest weekly gain since mid-2016, though gold was set for a decline after a multi-month rally.

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Elsewhere, New Zealand’s dollar fell 1% Friday as the country reported its first case of the virus and investors bet on policy easing from the central bank. Turkish stocks plunged as tensions between Ankara and Moscow soared.

These are the main moves in markets:

Stocks

• The S&P 500 Index fell 1.2% as of 11:45 a.m. New York time.
• The Nasdaq 100 Index dropped 0.1%.
• The Dow slid 1.7%.
• The Stoxx Europe 600 Index decreased 4.4%.
• Germany’s DAX Index slid 4.5%.
• The MSCI Asia Pacific Index dropped 2.6%.

• The Bloomberg Dollar Spot Index rose 0.2%.
• The euro fell 0.3% to $1.0973.
• The British pound dipped 0.5% to $1.2820.
• The Japanese yen strengthened 1.28% to 108.20 per dollar.

• The yield on 10-year Treasuries declined nine basis points to 1.17%.
• The yield on two-year Treasuries decreased 15 basis points to 0.91%.
• Germany’s 10-year yield decreased five basis points to -0.60%.
• Britain’s 10-year yield dipped four basis points to 0.434%.