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GLOBAL MARKETS-Wall Street slumps, government bonds hammered as stimulus high fades

Published 03/18/2020, 10:12 PM
Updated 03/18/2020, 10:16 PM
GLOBAL MARKETS-Wall Street slumps, government bonds hammered as stimulus high fades

* Lack of liquidity roils European fixed-income markets
* U.S. stocks fall around 5% at open
* Virus fears dash stimulus hopes
* Crude oil futures tumble to 18-year low
* Dollar index breaks through 100 to near three-year highs

By Karin Strohecker
LONDON, March 18 (Reuters) - Wall Street resumed a steep
slide on Wednesday while bond markets rushed to price in the
sheer scale of government support programmes and handouts
announced over the past 24 hours, all aimed at softening the
economic shock of coronavirus.
Dire trading conditions continued to make two-way trading
difficult and exaggerated the moves as investors piled into cash
with the selloff in government bonds in particular drawing
European Central Bank support for the Italian debt market.
U.S. dollar funding stresses remain evident, even if
slightly easier since the U.S. Federal Reserve's latest support
for commercial paper and securities repurchase markets Tuesday.

Even the usual safe-haven assets, such as gold, got caught
in the rout as battered investors looked to unwind their damaged
positions while oil prices tanked to a 18-year low below $30.
"Another remarkable day in what is clearly fin-de-regime,"
Rabobank's global strategist Michael Every wrote in a note.
"Things have already irrevocably changed and whipsaw market
action reflects that this is the case. The only issue is how
much further they change from here, and hence where markets
settle."
Wall Street's main indexes slumped at the open as growing
signs of coronavirus damage to corporate America saw Tuesday's
sugar high over sweeping official moves to protect the economy
fade fast. .N
The Dow Jones Industrial Average .DJI fell 1,048.69 points
or nearly 5% at the open to 20,188.69, while the S&P 500 .SPX
opened lower by 92.69 points, or 3.7% at 2,436.50. The Nasdaq
Composite .IXIC dropped 432.47 points or nearly 6%.
The declines follow sharp tumbles in Europe where equity
indexes in London .FTSE , Frankfurt .GDAXI and Paris .FCHI
plunged around 5% and Milan .FTMIB slipping around 2%. .EU
MSCI's global stocks index dropped nearly 4% .MIWD00000PUS .
In Asia, the MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS dropped 4% to lows last seen in
summer 2016, led by a 6.4% fall in Australia. Japan's Nikkei
.N225 dipped 1.7%.

Bond markets joined the selling as liquidity vanished from
European fixed income.
Italy's debt found itself at the centre of the sell-off with
borrowing costs soaring, on track for their biggest daily jump
since the 2011 euro zone debt crisis. The rout quickly spread to
Spanish, Portuguese and Greek yields. Safe-haven German 10-year
debt yields jumped to two month highs at -0.2%. GVD/EUR
In Europe, speculation grew around the issuance of joint
euro zone "coronavirus" bonds or a European guarantee fund to
help member states finance urgent health and economic policies.
"The liquidity situation is horrendous. What we see if
liquidity is completely drying up when one-way selling starts
and no one wants to take the other side," Salman Ahmed,
investment strategist at Lombard Odier.
"In the pre-crisis era, banks would step in and buffer the
shock. Now there are no banks, only mutual funds which are
having a run on their funds -- it's all impatient money."
Big price swings have saddled market participants with
losses, making them reluctant to get back into the market and
thereby reducing trading volume.
Benchmark U.S. 10-year Treasury yield touched a three-week
high of 1.2260 US10YT=RR after the Federal Reserve eased some
market jitters. U.S. 30-year bond yields climbed as high as
1.8440% US30YT=RR .
"We are in the midst of the mayhem really, and I think there
is still a risk that the increasing number of infections will
keep markets on their toes," said Hans Peterson global head of
asset allocation at SEB investment management.
"It is hard to know how deep the recession will be, and as
long as we have that situation it is hard to lift sentiment."

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BRIEF SUGAR HIGH
Wall Street had enjoyed a brief sugar-high on Tuesday after
policymakers cobbled together packages to counter the impact of
the virus.
The Trump administration announced a $1 trillion stimulus
package that could deliver $1,000 cheques to Americans within
two weeks to buttress a virus-stricken economy. Britain launched a 330 billion-pound ($400 billion) rescue
package for businesses threatened with collapse. France, which
went into lockdown on Tuesday, is to pump 45 billion euros ($50
billion) into its economy to help companies and workers.
Still, forecasters at banks are projecting a steep economic
contraction in at least the second quarter as governments take
draconian measures to combat the virus, shutting restaurants,
closing schools and calling on people to stay home. Tuesday saw also the Fed step in again to ease corporate
funding stress by reopening its Commercial Paper Funding
Facility to underwrite short-term corporate loans. In currency markets, the dollar extended its gains with the
index against a basket of currencies up 0.6% .DXY to trade at
a near-three year high of 100.61.
The dollar also hit multi-year highs against both the
Australian and New Zealand dollars, as companies and investors
worried by the coronavirus outbreak headed for the world's most
liquid currency. FRX/ The pound tumbled below 1.20 to the
dollar, trading at its lowest level since October 2016.
Perceived safe havens such as the Japanese yen and the Swiss
franc held their ground.
Oil prices fell for a third session, with U.S. crude futures
tumbling to an 18-year low and Brent hitting a more than 16-year
low as travel and social lockdowns to counter the coronavirus
raised prospect of the steepest ever annual fall in oil demand.
U.S. crude Clc1 was down $3.25, or about 12%, at $23.70 a
barrel by 1322 GMT, having earlier touched its lowest since
April 2002 at $23.60. O/R

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