Investors continued to pile into safe-haven assets Friday, pushing the yield on long-term U.S. government bonds to unprecedented levels and setting gold up for its best week in over a decade.
The yield on the benchmark 10-year Treasury sank below 0.8% for the first time. Stock futures also retreated, with contracts linked to the Dow Jones Industrial Average declining 2.3%, pointing to a decline of over 600 points when the blue-chips index opens for trading in New York. On Thursday, all three major U.S. stock indexes had retreated more than 3%.
Oil prices added to the market turmoil Friday, with the global benchmark, Brent crude, declining 3.8% to $48.09 a barrel. Russia disagrees with OPEC’s preliminary agreement Thursday to cut output by 1 million barrels a day, The Wall Street Journal reported. OPEC members and their allies, led by Russia, are continuing to meet Friday in Vienna. Brent has declined 27% since the beginning of the year as the coronavirus has hammered demand.
The pan-continental Stoxx Europe 600 gauge also dropped 3.4% to its lowest level since August. Asia’s major equity benchmarks closed lower Friday, with the Shanghai Composite Index losing 1.2%.
“People are accepting the size of the crisis: they know the governments are doing the right thing but what your brain tells you logically isn’t always how you feel about something emotionally,’’ said Sebastien Galy, a senior macro strategist at Nordea Asset Management. NDA.FI -4.02% “We’re seeing the market’s emotional brain leading today.”
Investors sought out assets that are considered low in risk — such as government bonds and gold — on worries about the economic impact of the coronavirus. The yield on 10-year Treasurys slipped to 0.755%, after earlier notching a record intraday level of 0.701%. It had closed Thursday at 0.924%. The yield on the 30-year benchmark dropped to 1.352%.
The continued market jitters — even after the Federal Reserve unexpectedly cut rates and U.S. lawmakers approved roughly $8 billion in emergency spending — is focusing attention now on potential government measures to counteract the economic impacts of the coronavirus. But President Trump and White House officials have said they don’t see an immediate need to craft a broader fiscal-policy response because the economy has been faring well.
Futures markets suggest the Fed’s key rate is likely to be in a range of just 0.25% to 0.5% by the end of April. That would be just 0.25 percentage points higher than the near-zero level that held from the depths of the global financial crisis until December 2015.
“Investors are expecting rate cuts now and they are expecting [the cuts] to persist in the next two to three years,” said Homin Lee, Asia macro strategist at Lombard Odier. He said markets were pricing two to three further interest-rate reductions this year, and that these moves would only be partially reversed in the next three years.
Safe-haven assets gained, with the Japanese yen rising 0.9% against the dollar. Gold also rose 0.9%, and is on track for its best one-week performance since December 2008.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of six major currencies, dropped 0.9% Friday.
Later in the day, the U.S. jobs report for February will offer fresh insights into the health of the U.S. economy before the coronavirus epidemic started to affect business activity. Economists surveyed by The Wall Street Journal are expecting 175,000 jobs to have been added last month and for the unemployment rate to be at 3.5%, a 50-year low.
The U.S. Commerce Department will also release data on the trade deficit, which is expected to have fallen to $46 billion in January from $48.88 billion the previous month.
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