Global markets went into a tailspin on Friday as investors stampeded out of stocks and commodities and flocked to the relative safety of government bonds, prompted by fears of a global recession due to the spread of the coronavirus .
After Wall Street experienced its worst rout since 2011 on Thursday, when the Dow Jones Industrial Average plunged by 1,190.95 points — its largest single-day drop in history — global markets took their cue on Friday. Indices across the world, beginning with Tokyo’s Nikkei, Seoul’s Kospi and European indices such as the FTSE 100 in London and Frankfurt’s DAX, were all bathed in red as investors rushed to dump shares.
Uncertain impact
Markets were spooked by the uncertain impact of the virus on global economic health.
The BSE Sensex sank by 1,448.37 points , or 3.64%, to close at 38,297.29. This is its sixth straight session of loss, and the index is now 3,976 points lower than its high of 42,273.87 points registered on January 20 this year.
Reflecting the turmoil in the stock markets, the rupee hit a six-month low against the dollar, at ₹72.27 , before recovering marginally to close at ₹72.21.
Worst week
U.S. markets appeared set to experience their worst week since the 2008 global financial crisis. The broad-based S&P 500 index was down 4% in early trade on Friday and is now down almost 15% since its all-time high set just six trading sessions back.
Yields on U.S. Treasury bills fell sharply as investors embraced its relative safety over stocks. The bond markets displayed an inverted yield curve where short-term bills yield more than long-term ones, signifying nervousness over economic prospects.
Yields on the 10-year Treasury bills fell to 1.17%, even as that on the 3-month bill remained at 1.43%. General economic wisdom holds that an inverted yield curve is the harbinger of a recession.
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Oil prices experienced their worst week since 2016, with the prices of the benchmark Brent crude falling to as low as $50.51 a barrel. Elsewhere in the commodity markets, metal prices fell by up to 6%.
Global borrowings benchmark Libor experienced its worst single-day drop in a decade, falling to 1.46275%, as the markets raised their bets on accelerated rate cuts in the U.S. as a response to the economic turmoil.
The second wave of the coronavirus set off fears of a recession in the U.S. and the Euro zone. Ratings agency Moody’s warned that the impact of disruptions in global supply chains, investment pullbacks by companies and slowing travel could trigger a global recession in the first half of 2020.
Sensex plunged 2,872.83 points or 6.97%, and the Nifty tumbled 879.10 or 7.27%
A statement by World Health Organisation Director-General Tedros Ghebreyesus that the virus had a “pandemic potential” added to the panic as spreading fear in the markets competed with the virus’s spread. About 60 new countries as far apart as Mexico, Belarus, the Netherlands and New Zealand reported new cases, with Nigeria, Africa’s largest economy, reporting its first case.
The effect of the virus was such that Switzerland cancelled the Geneva Motor Show, one of the show-piece events of the automobile industry, that was due to open next week. Japan shut down Tokyo Disneyland and Universal Studios, and questions have risen over the Olympics that are set to begin in Tokyo in July.
