US stocks have fallen sharply after Federal Reserve Chair Jerome Powell warned about the threat of a prolonged recession.
The ASX is set to follow Wall Street into the red today as global markets take fright from the bleak outlook.
Mr Powell said that the United States was in the midst of the “biggest shock our economy has felt in modern times” and probably will face an “extended period” of weakness.
This morning Wall Street was falling toward a second straight day of sharp losses, weighed down by worries about a slow recovery for the US economy.
The S&P 500 was down 2.1 per cent, as of 3pm (US Eastern time), with the sharpest losses hitting stocks that most need a healthy economy for their profits to grow.
The Dow Jones Industrial Average was down 567 points, or 2.4 per cent, at 23,194, and the Nasdaq composite was down 2.2 per cent.
Treasury yields were also lower in another sign of pessimism, after Federal Reserve Chair Jerome Powell warned about the threat of a prolonged recession.
He said the US government may need to pump even more aid into the economy, which is bleeding millions of jobs every week as collateral damage in the battle against the coronavirus pandemic.
The market has been wavering the last couple weeks after coming off its best month in a generation, as optimism about reopening the economy collides with worries about the dangers of lifting restrictions too soon.
“At this stage now, we think there are more risks to the downside than the upside,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“Consumers in general are going to be more wary and more interested in boosting savings rates and are unlikely to come back to a world of consumption anywhere near what it looked like before,” she said.
Worries that the economic recovery may not be as strong or as rapid as investors had been banking on just a week ago hit oil companies and banks particularly hard.
Energy producers in the S&P 500 fell 4.8 per cent for the biggest loss among the 11 sectors that make up the index.
Financial stocks were close behind with a 3.2 per cent loss. Those two areas of the market have been some of this year’s biggest losers this year on expectations for less demand for oil and lower profit from making loans.
Worries about a resumption in trade tensions between the United States and China have also weighed on markets around the world recently.
On Tuesday, the top U.S. infectious diseases expert, Dr. Anthony Fauci, warned that if the economy reopens too soon, it could cause a backtrack in the “road to try to get economic recovery.”
In China, where the virus first surfaced, authorities announced seven new cases on Wednesday. Six were in Jilin province, in the northeast, where alert levels were raised and rail connections suspended. South Korea reported 26 additional cases of the coronavirus over the past 24 hours amid a new spike in infections linked to nightclubs in Seoul.
In Asian stock markets, Japan’s Nikkei 225 slipped 0.5 per cent, the Hang Seng in Hong Kong lost 0.3 per cent and South Korea’s Kospi rose 0.9 per cent. In Europe, Germany’s DAX lost 2.6 per cent, and France’s CAC 40 dropped 2.9 per cent. The FTSE 100 in London lost 1.5 per cent.
The yield on the 10-year Treasury fell to 0.64 per cent from 0.69 per cent late Tuesday. A barrel of US oil to be delivered in June fell 49 cents, or 1.9 per cent, to settle at $25.29. Brent crude, the international standard, fell 79 cents, or 2.6 per cent to $29.19 a barrel.