Asia, Euro stocks and US futures slump on Fed caution, virus fears

London

STOCKS in Europe and Asia tumbled with US equity futures on Thursday as fears of a second wave of the virus and a cautious outlook from the Federal Reserve clouded hopes for a speedy economic recovery.

The Stoxx Europe 600 Index sank, with sectors scooped up in the recent rally such as banks and travel leading declines. S&P 500 contracts extended their losses by as much as 2 per cent the day after Fed chairman Jerome Powell suggested the pandemic could inflict long-lasting damage on the economy, and amid concerns over coronavirus infection rates jumping in parts of America.

Asian heavyweights suffered, with China blue chips slipping 1 per cent, while Hong Kong, Taiwan and South Korea shares gave up between 0.9 per cent and 2.2 per cent. The Chinese yuan weakened 0.1 per cent while the South Korean won slipped from three-month highs.

Japan's Nikkei slid 2.1 per cent in its largest daily loss in five weeks, while Singapore's Straits Times Index tumbled 3.4 per cent.

Data from Malaysia underscored the damage, with April factory output numbers recording a 32 per cent year-on-year drop, nearly double the decline forecast by analysts.

In a reality check to the stock market's recent euphoria, the Fed predicted the US economy would shrink 6.5 per cent in 2020 and unemployment would still be at 9.3 per cent at year's end.

Data out earlier had also shown that core US consumer prices fell for a third straight month in May, the longest stretch of declines on record.

Treasuries continued higher alongside German bunds on haven demand, while the US dollar rebounded from Wednesday's losses.

"This is the first time we've had a little bit of negative newsflow recently" on developments in the coronavirus, Dean Turner, economist at UBS Global Wealth Management, told Bloomberg TV. "Put that in the context of how far markets have come in the last few weeks, it's not at all surprising that we get a little bit of profit-taking at this stage."

Stocks are catching their breath after a strong rally from March lows.

US virus cases now top two million, with fears of a second wave in Texas and Florida. Treasury Secretary Steve Mnuchin said the US "definitely" needs more fiscal stimulus, supporting prospects for another round this summer.

European policymakers were due to meet on Thursday on whether to boost aid.

Markets are shifting as investors digest the Fed's decision to leave its policy settings unchanged while pledging to keep buying bonds. Mr Powell said that the central bank had a briefing on yield-curve control, amid expectations from some economists that the central bank will follow Australia's and Japan's in adopting such a tool.

Elsewhere, crude oil declined while gold held on to most of Wednesday's gain. BLOOMBERG, REUTERS