Asian shares fall as traders fret about second wave of Covid-19

Tokyo/New York — Stocks and oil prices fell on Wednesday as the fear about a second wave of coronavirus infections gripped financial markets.

Investors, many facing steep losses due to the pandemic-driven shakeout in assets over the past few months, have also had to contend with renewed US-China trade tension.

Leading US infectious disease expert Anthony Fauci on Tuesday warned legislators that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

Fauci’s comments hammered Wall Street stocks overnight, underlining fragile investor sentiment which has in recent sessions swung between optimism over some easing in lockdowns globally and anxiety about a fresh spike in virus cases.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4%. Shares in China, where the coronavirus first emerged in late 2019, fell 0.5%.

The South Korean market was down for a third session. New coronavirus infections have appeared in Seoul after the country eased restrictions last week.

Oil markets, which have plummeted in 2020 due to a combination of a collapse in demand and a supply glut, lost further ground in Asia.

Treasury yields also inched lower amid caution before a speech by US Federal Reserve chair Jerome Powell and rising speculation the US could one day adopt negative interest rates.

“It looks like we’re in for another negative day of trading here in the Asia-Pacific region,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “It’s very clear that the containment has done economic damage and the recovery will take years and not weeks,” he said.

US stock futures, the S&P 500 e-minis, were down 0.4% in Asian trade.

In overnight trade, Wall Street shares were dragged lower after Fauci’s remarks, including his statement that a treatment or vaccine is unlikely to be in place by late August or early September.

The Dow Jones Industrial Average fell 1.89% on Tuesday, the S&P 500 lost 2.05% and the Nasdaq Composite dropped 2.06%.

The mood was further soured by proposed legislation by a leading US Republican senator that would authorise President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the outbreak of the novel coronavirus.

Stock markets have rebounded sharply in recent weeks as the spread of the novel coronavirus slowed in some countries in Asia and Europe, while parts of the US economy began to reopen after weeks of lockdowns.

Equities and some riskier assets are starting to erase some of those gains due to worries that a rush to reopen factories and shops may be premature.

Australian shares were down 1%, while Japan’s Nikkei stock index slid 0.8%.

The yield on benchmark 10-year treasury notes eased slightly to 0.6622%. The two-year yield fell to 0.1589% but remained above a record low of 0.1050% hit on Friday.

The New Zealand dollar slumped 0.7% to $0.6030 after the country’s central bank doubled its quantitative easing (QE) programme and said it has asked commercial banks to be ready for negative interest rates by year’s end.

The dollar nursed losses as traders braced for Powell’s speech, which will cover economic issues and may offer a hint whether negative rates are a viable policy option.

Trump on Tuesday again pushed the Fed to adopt negative interest rates, a hot topic in financial markets since last week when US money market instruments started to price in a chance of negative rates.

US consumer prices dropped 0.8% in April, the biggest since the Great Recession, raising the spectre of deflation.

Oil futures fell in Asia as the worry about the virus overcame hope that output cuts will put a floor under prices.

US crude dipped 1.63% to $25.36 a barrel. Brent crude fell 2.03% to $29.37 a barrel.

Reuters