Investors bailed out of stocks despite a massive intervention by the US Federal Reserve on Sunday. The central bank slashed rates to close to zero at an emergency meeting, and said it would purchase another $700 billion worth of Treasury bonds and mortgage-backed securities.
The shock rate cut is designed to prevent the economic shock leading to the kind of credit crunch and financial market disruptions that occurred during the global financial crisis — the last time the Fed cut rates all the way to the bottom.
“I don’t think [the Fed] would have done this unless they felt the financial markets were at significant risk of freezing up tomorrow. They’re very concerned the financial markets won’t work. So I don’t know how the markets take solace in this,” Mark Zandi, chief economist of Moody’s Analytics, told CNN Business.
Brent crude, the global benchmark for oil, declined 6% to $31.83 per barrel.
Rough day in Asia
Markets in Asia Pacific were rocked by data showing the Chinese economy has been hit harder than expected by the coronavirus outbreak.
Retail sales in China plunged 20.5% in the January-to-February period from a year earlier, much worse than the forecast 0.8% rise by analysts polled by Reuters, according to the National Bureau of Statistics. Industrial output also fell 13.5% during the same period, while fixed asset investment plunged 24.5%, both widely missing estimates.
Mao Xinyong, a spokesman for the National Bureau of Statistics, said at a press conference that China will increase policy support to counter the virus’ impact, including active fiscal measures and prudent monetary measures to support businesses, as well as special policies to protect jobs.
The People’s Bank of China on Monday pumped 100 billion yuan ($14.3 billion) into the financial system by offering loans to banks. On Friday, the central bank announced it would cut the amount of cash banks need to hold as reserves, injecting around 550 billion yuan ($78.6 billion) into the economy.
The central bank also said it would take other measures to lower borrowing costs to protect the economy that has been damaged by the coronavirus outbreak.
Global monetary policy support is coming “thick and heavy,” said Stephen Innes, global chief markets strategist at AxiCorp.
But the biggest concern is that the the world’s top central banks have exhausted their policy tool kit, especially the Fed, the biggest and most influential one of them all, he said.
“The markets now appear kind of defenseless to another selling onslaught, so the fiscal step is crucial in avoiding a dreaded global credit event,” Innes added.
— David Goldman and Chris Isidore contributed to this report.