A new wave of worry hits Wall Street.
Stocks tumbled, investors rushed to the safety of government bonds, and oil prices nose-dived as worry over the spreading coronavirus gripped Wall Street again Friday.
The most dramatic move in financial markets was a sharp drop in yields on government bonds. A rush of buying pushed those yields, which move in the opposite direction as prices, down to levels that would have been considered unthinkable just two weeks ago. The yield on the 10-year note was 0.68 percent in early trading in New York.
Such a stark drop reflects near panic, analysts said, given that there was very little news overnight.
Also reflecting fears about the economy, oil prices slid as the world’s major oil producers failed to to reach an agreement to reduce production as global demand for fuel wanes.
A strong report on the American job market on Friday didn’t change the direction of the markets. The U.S. government said employers added 273,000 jobs in February. But the data was a snapshot of a point in time when the prevailing sentiment was that the United States would remain relatively unaffected by the coronavirus.
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Nor did it help that President Trump signed a $8.3 billion emergency spending bill aimed at funding efforts to contain the spread.
The downdraft already reflects a growing recognition that the Federal Reserve on its own will not be able to offset drags on the economy from the spreading coronavirus. The central bank already cut rates by a half point earlier this week, and investors increasingly expect the Fed to do so again at its meeting later in March.
Economists on Wall Street have slashed growth forecasts for this year, and warned the economy could at least briefly slip into recession, over rising fear of the effects of the virus on supply chains, tourism and other economic activity. Analysts said Friday that the Fed will be unlikely to offset that damage on its own.
“The Fed’s emergency rate cut this week made it clear that officials are taking the economic risks posed by the coronavirus outbreak seriously,” analysts at Capital Economics said in a note Friday. “But with the number of new cases rising sharply, we don’t think lower interest rates will prevent activity growth from slowing over the next few months.”
For many the question now is how much damage can the virus do to the global economy and growth prospects for the year. The uncertainty over that impact has triggered wave after wave of selling in recent weeks, pulling the S&P 500 down more than 10 percent from its record high on Feb 19.
“The epidemic has already dented anemic global economic growth this year and it can be expected to slow further, then contract, as the fear of the virus takes hold,” said Nigel Green, chief executive of deVere Group, an investment firm.
Factories in China are still struggling to get back up and running. Thousands of flights around the world have been grounded. Supply chains have been snarled, shaking some of the world’s biggest companies and forcing an untold number of workers to stay home.
“Against this backdrop, we should prepare for a short-term but severe global recession,” Mr. Green said.
Shares in Europe were also sharply lower, with benchmarks in Britain, Germany and France down more than 3 percent. In Tokyo, Hong Kong and Seoul, markets closed more than 2 percent lower.
The Fed may need to buy other assets to replenish its tool kit.
The Federal Reserve may need to buy assets other than government bonds to counter the next downturn, a Fed official said Friday, a dramatic suggestion meant to bolster the central bank’s increasingly depleted tool kit for fighting a downturn.
In coming years, “vision and boldness will be needed by all policymakers if we have to consider how policy should react to any large, adverse shock to the economy,” Federal Reserve Bank of Boston President Eric Rosengren told a room full of monetary policymakers and economists in New York.
Slumping longer-term interest rates leave the Fed with dangerously little room to stimulate the economy should things worsen. Their primary tool, the federal funds rate, lowers short-term rates and is already very low. Their backup measures, like mass bond-buying, work to push down longer-term rates. As those fall to rock-bottom, the Fed has little room to maneuver.
Mr. Rosengren said that if the Fed cuts its policy interest rate to near-zero, it is possible that the 10-year Treasury rate would follow.
“Such a situation would raise challenges policymakers did not face even during the Great Recession,” he said. And in such a case, “we should allow the central bank to purchase a broader range of securities or assets.”
Oil prices dive as OPEC and Russia fail to agree.
Oil prices plummeted Friday as major producers meeting in Vienna failed to reach an agreement to reduce production, as concerns about coronavirus’s impact on the economy spread across the globe.
Brent crude fell by about 9 percent, as low as $45.37 a barrel, a two-and-a-half-year low. West Texas Intermediate crude, the U.S. benchmark, was as low as $41.92 a barrel.
Oil prices have fallen more than 20 percent since early January when China, a major importer of oil, started confronting the emerging coronavirus outbreak.
The Organization of the Petroleum Exporting Countries and other producers, including Russia, were meeting to try to steady the prices by reducing output beyond cuts that were already approved. But the producers struggled to reach an agreement during the meetings, which were in their third day on Friday.
The jobs report shows a burst of hiring before the coronavirus outbreak.
For the second month in a row, the United States economy churned out a blockbuster number of jobs, the government reported Friday, an impressive showing in an era of slow-and-steady employment growth.
Employers added 273,000 jobs in February. Analysts had expected a gain of about 165,000, according to MarketWatch.
But with the coronavirus outbreak shaking economic confidence, the solid showing may not be a harbinger of continued strength.
Every jobs report looks backward, but February’s report captures a particularly unusual moment before the market was gripped with anxiety about the global impact of a widening epidemic.
The Fed quarantines cash.
The Federal Reserve is keeping cash coming from Asia under a quarantine, and stands ready to extend that effort to money coming in from other countries as deemed necessary.
Dollars that have returned to the United States from Asia, where the coronavirus first surfaced and where it has taken hold most dramatically, have been held for a minimum of 7 to 10 days since Feb. 21., a Fed spokeswoman said.
If the Centers for Disease Control and Prevention or State Department determine that other countries could also present a risk, the Fed is prepared to extend its new procedures to other incoming cash. And they have a contingency supply of fresh currency at the ready to swap into the financial system, if needed, the spokeswoman said.
While the coronavirus seems to transmit primarily person-to-person, much is still unknown about how it jumps from person to person. The CDC says “it may be possible” to contract the virus from surfaces or objects touched by an infected person.
Here’s what else is happening.
Microsoft said late Thursday that two employees in the Seattle area have been diagnosed with coronavirus, the first known cases at the company, which is one of the region’s largest employers.
Singapore Airlines said on Friday that a cabin crew member, whose last flight was between Paris and Singapore on Feb. 24, had tested positive for coronavirus. He has not been to work since the onset of symptoms, the airline said.
Apple sent a memo to its Silicon Valley employees on Friday saying while its offices would remain open, it was encouraging them to work from home to minimize health risks. Meanwhile, Facebook said on Friday it had closed its London offices until Monday because of coronavirus concerns.
Reporting was contributed by Matt Phillips, Jeanna Smialek, Alexandra Stevenson, Stanley Reed, Patricia Cohen, Karen Weise, Geneva Abdul, Kirk Johnson and Jack Ewing.