Global equity markets fell sharply on Thursday in their worst sell-off since markets crashed in mid-March, while safe-haven assets rose after the Federal Reserve’s sobering outlook cast doubt on hopes for a V-shaped recovery from the coronavirus pandemic.
All three major U.S. stock indexes fell by more than 5%, Asia’s 10-day winning streak ended [.T] and major European bourses declined roughly 4%. The decline ended a recent rally that had recouped much of the market’s deep losses and pushed the Nasdaq to record highs earlier this week.
U.S. Treasury and euro zone government bonds rallied after the Fed signaled it plans years of extraordinary support to counter the economic fallout from a still spreading pandemic.
U.S. gold futures settled more than 1% higher, and the dollar, yen and Swiss franc all benefited from safe-haven flows as Wall Street slumped.
Matt Miskin, co-chief investment strategist at John Hancock Investments, said investors, particularly those who had bought into risky assets, were anticipating an “optimistic and speedy economic recovery.”
“The Fed gave the markets a reality check yesterday forecasting economic growth to not return to pre-COVID-19 levels until the end of 2021,” Miskin said.
The Fed predicted Wednesday that the U.S. economy would shrink 6.5% in 2020 and unemployment would still be at 9.3% at year’s end.
While the number of Americans seeking jobless benefits fell last week, millions laid off due to COVID-19 continue to receive unemployment checks, suggesting the U.S. labor market could take years to heal even as hiring resumes.
MSCI’s all-country world index, which tracks shares in 49 nations, fell 4.61% to 514.89, its biggest slide since March 18. Europe’s broad FTSEurofirst 300 index closed down 4.11% at 1,378.16.
On Wall Street, the Dow Jones Industrial Average fell 1,861.82 points, or 6.9%, to 25,128.17. The S&P 500 lost 188.04 points, or 5.89%, to 3,002.1 and the Nasdaq Composite dropped 527.62 points, or 5.27%, to 9,492.73.
Declining issues outnumbered advancing ones on the New York Stock Exchange by an 18:1 ratio, while the ratio was 13:1 on the Nasdaq.
Fed Chair Jerome Powell on Wednesday at the end of a two-day meeting of policymakers confirmed the Fed was studying yield curve control, a form of easing already employed by Japan and Australia.
John Vail, chief global strategist at Nikko Asset Management in Tokyo, said in his view the Fed is moving toward yield curve control, which should keep 10-year yields at 1% or less and will tend to suppress the dollar, at least for a while.
Yields on 10-year Treasury notes dropped sharply from last week’s peak of 0.96%. [US/] The 10-year Treasury note fell 8.9 basis points to yield 0.669%, while Germany’s 10-year benchmark fell 10 basis points to a nine-day low at -0.43%.
The yen rose to a one-month high against the dollar, while the Swiss franc climbed to a three-month peak. The dollar also rose 0.4% to 96.556 against a basket of currencies.
The euro fell 0.70% to $1.1289, and the yen slid 0.21% to $106.8600.
U.S. gold futures settled up 1.1% at $1,739.80 an ounce.
Market sentiment also took a hit as new coronavirus infections in the United States showed an uptick, and a leading health expert predicted that U.S. deaths could reach 200,000 in September.
Oil prices tumbled, fueled by renewed concerns about demand destruction as new cases of coronavirus tick up globally, while the United States saw another large build in crude inventories.
Brent crude futures settled 7.62 percent lower at $38.55 a barrel. U.S. crude oil futures settled at $36.34 a barrel, down $3.26, or 8.23%.