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US officials talk down virus market panic, tout economic strength

[WASHINGTON] Senior officials in President Donald Trump's administration on Sunday tried to calm market panic that the coronavirus could cause a global recession, saying the US public had over-reacted and that stocks would rebound due to the American economy's underlying strength.

The S&P 500 index dropped 11.5 per cent last week as the virus accelerated beyond China's borders, the worst weekly drop since the 2008 global financial crisis. Roughly US$4 trillion has been wiped off the value of US stocks.

Economists have begun to worry that the losses could soon start to weigh on consumer spending even before the virus becomes widespread in the United States.

US financial regulators who will gather on Wednesday face their most challenging week in a decade. One official told Reuters that the coming days will determine whether the federal government must take measures to bolster market confidence.

Speaking to NBC's "Meet the Press" on Sunday, US Vice-President Mike Pence, who is leading the administration's response to the virus, said that the market "will come back".

"The fundamentals of this economy are strong. We just saw some new numbers come out in housing and consumer confidence and business optimism. Unemployment is at a 50-year low. More Americans are working than ever before," Mr Pence said.

On Friday afternoon, Federal Reserve chair Jay Powell sought also to quell fears, stoked by dire economic data from China, flagging that the central bank would take action if necessary to support the economy, which he said remained strong.

Mr Trump, seeking re-election on Nov 3, has pressed his view that the risk to the American people from the virus remains "very low" even as he has faced Democratic criticism that his administration had bungled its response to the outbreak.

When asked on the "Fox News Sunday" programme if the American people are over-reacting to the current threat, US Health and Human Services Secretary Alex Azar responded: "Yes, absolutely."

The World Health Organization's director-general Tedros Adhanom Ghebreyesus likewise told CNBC on Sunday that the market panic was uncalled for, even after the organization on Friday raised its threat assessment for the virus to its highest level.

"Global markets ... should calm down and try to see the reality," he said.

The virus has infected around 85,000 people in 53 countries. China, the world's second-largest economy and epicentre of the outbreak, is home to the vast majority of cases. About 70 have been diagnosed in the United States.

A Washington state man in his 50s with underlying health conditions was the first American to die from the virus, officials said Saturday.

Writing on Twitter late on Saturday, Mohamed El-Erian, chief economic adviser to Allianz, said reassuring words may not be enough to stem the rout, given the negative news.

"Absent anything else, I worry that this may still tip net negative" on Monday trading resumption, he wrote.

US futures contacts, a key indicator of how the stock market will open, begin trading at 6 pm ET Sunday.

Investors will also be keeping a close eye on the 10-year Treasury yield, a key proxy for growth expectations, amid fears it could drop below the key 1 per cent threshold as investors pile into safe haven assets. It ended the week at less than 1.13 per cent, but the implied yield on the 10-year note future touched 1 per cent on Friday and ended the week at 1.04-1.05 per cent.

BUSINESSES REACTION

The rapid spread of the virus has led businesses globally to restrict travel, send workers home and cancel conferences, hitting stocks in the aviation, gambling, tourism and luxury goods sectors. That disruption to global supply chains and productivity has darkened the outlook for a world economy already struggling with the fallout of the US-China trade war.

So far, the outbreak's biggest measurable effect has been in China, but a purchasing managers survey last month signaled it was beginning to hit US businesses. Another batch of US economic indicators due out early this week will be closely watched for evidence of a growing impact.

Investors now fully expect the Fed to respond with interest rate cuts this month. Questions remain over how far the Fed would cut and what more officials there and at other central banks can do beyond lowering borrowing costs already at rock-bottom levels for more than a decade.

In a blog post on Sunday, Washington trade group the Bank Policy Institute, said the Fed could explore additional measures to stimulate credit, including cutting the deposits banks must hold on reserve with the Fed and increasing the availability of liquidity through its discount window.

Mr Pence said the US government is doing "everything possible" to prevent the virus from spreading and that he is "confident" the United States is prepared.

Mr Azar said that during a meeting of the White House's coronavirus task force on Saturday, US Treasury Secretary Steven Mnuchin had discussed the negative stock market reaction, saying that much of it was driven by uncertainty. Mr Azar said the administration aimed to quell that uncertainty by being as transparent as possible about latest developments.

"That's why we are trying to give the American people all the information we have when we have it so they don't think there's secret information they're not getting," Mr Azar said.

REUTERS