Asian stocks continue slide after Fed emergency cut fails to lift mood; STI down 2.5%

ASIAN shares resumed their drop after the US Federal Reserve made another off-cycle emergency rate cut, with the sell-off on Monday suggesting policy measures, at least temporarily, are not enough to calm markets spooked by the escalating fallout from Covid-19.

"The Fed rate cut, rather than calming markets, appears to have highlighted just how serious the international situation has become," Oanda's Asia-Pacific senior market analyst Jeffrey Halley said.

The cut, announced overnight, brings the Fed Funds Rate to 0-0.25 per cent, the lowest since 2008's Global Financial Crisis (GFC).

The US central bank also slashed its discount rate by 150 basis points to 0.25 per cent, providing banks access to the new rate for 90 days to facilitate credit provision for businesses and households. In a return to quantitative easing (QE), it has pledged to buy US$700 billion in bonds too.

The Fed's move follows unscheduled moves by other central banks over the weekend to lower rates, including Canada, Norway and New Zealand.

The Hong Kong Monetary Authority has since lowered its benchmark interest rate after the Fed decision, while the Bank of Japan is said to be announcing a policy decision later on Monday ahead of its Thursday meeting.

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Following a more than 9 per cent recovery on key Wall Street benchmarks last Friday, US Futures markets are currently trading more than 4 per cent lower. At one point, S&P 500 futures reached "limit down" levels of 5 per cent.

At the start of Monday trading, Singapore's Straits Times Index (STI) fell 3 per cent. As at 11.03am, the STI was trading 66.78 points or 2.5 per cent lower at 2,567.22.

The STI, like other benchmarks globally, continues to trade in bear territory. At current levels, the STI is down 24.8 per cent from its 52-week high of 3,415.18, achieved on Apr 29, 2019.

In North Asia, Hong Kong's Hang Seng Index fell 552.33 points or 2.3 per cent to 23,480.58, and mainland China's Shanghai Composite Index lost 15.11 points or 0.5 per cent to 2,872.31.

Meanwhile, South Korea's Kospi was down 9.43 points or 0.5 per cent to 1,762.01 but Japan's Nikkei 225 edged up 9.74 points or 0.05 per cent to 17,440.79.

In South-east Asia, Indonesia's Jakarta Composite Index shed 189.07 points or 3.9 per cent to 4,718.50, and Malaysia's Kuala Lumpur Composite Index was trading 27.85 points or 2.1 per cent lower at 1,316.90.

Elsewhere in the Asia-Pacific, Australia's commodity-heavy S&P/ASX 200 Index erased 430.00 points or 7.8 per cent to trade at 5,109.30.

The magnitude of the Fed's action has suggested to some that the central bank could be out of ammunition.

FXTM global head of currency strategy and market research Jameel Ahmad said: "Not only has the Federal Reserve thrown all of its tools out of the toolbox to help combat the economic pressures that the coronavirus will bring to the world economy ... it can't be helped to hold concern following this move regarding what ammunition does the Fed truly have left?"

Likewise, Stephen Innes, AxiCorp's chief markets strategist, is also of the view "the Fed has likely fired off its last Bazooka". Going forward, he added that "given the economic impact is yet to define an upper bound on Europe or the US, the investment world could be subject to an even more massive global gross domestic product downward revision".

On the other hand, Bank of Singapore's head of investment strategy Eli Lee noted that although the Fed "has hit the zero-bound and likely has no intention to bring rates to negative levels", he believes there could be more easing to come "if the shock from the outbreak deepens".

That being said, Mr Lee pointed out that "monetary policy is a blunt tool against the virus outbreak which is a medical crisis, but it will help in alleviating financial conditions for businesses facing cash flow shocks, and also reduces the risk of negative feedback loops triggered by a potential freezing in liquidity conditions, as we saw in the GFC due to Lehman's insolvency and bankruptcy".