Sydney: Asian stocks plunged to their lowest in two weeks on Wednesday and the dollar approached its highest in four months as lockdowns due to the Coronavirus in Europe and potential tax hikes in the United States weighed on risk appetite, leading to flight to safety.
US and European equity futures were weaker in late Asian trading. E-Mini futures for the S&P 500 fell 0.1%, London FTSE futures were down 0.65% while Eurostoxx 50 futures lost 0.6%.
The MSCI Asia Pacific Index of stocks outside Japan fell 1.3% after losing 0.9% on Tuesday. It dropped to 674.18 points, a level last seen on March 9th.
The index saw a disappointing performance in March after five straight months of gains, as earlier risky assets were troubled by concerns that inflation would rise faster than expected led by the success in the launch of a coronavirus vaccine and the massive fiscal stimulus for the United States.
Japan’s Nikkei is down 2% while South Korea’s Kospi is down 0.4%. Chinese stocks were in the red for a second day with the CSI300 Leading Index dropping 1.65%. Hong Kong’s Hang Seng Index fell 2.2%.
On Wall Street overnight, the Dow Jones Industrial Average fell 0.94%, the S&P 500 lost 0.76% and the Nasdaq Composite fell 1.12%.
“We continue to emphasize that the economic outlook remains linked to the trajectory of the virus,” said Kim Mundy, chief economist and currency strategist at the Commonwealth Bank.
“The danger is that the most contagious and deadly strain of the virus is eliciting a stronger response from European governments that see Europe remain in lockdown for a longer period.”
Germany extended its lockdown to April 18. A US health agency said the AstraZeneca Plc vaccine developed with the University of Oxford may have included outdated information in its data, adding to investor concerns about a recovery.
Adding to investor concerns, Treasury Secretary Janet Yellen told Congress on Tuesday that the US economy was still in danger.
In currencies, the dollar index approached a four-month high of 92.506 against a basket of most major currencies.
The euro rose to a four-month low below $ 1.18355 – trading at its lowest level at $ 1.18360 – after Germany extended its close. The safe-haven yen was broadly stronger, and the Australian dollar – considered a liquid proxy for risk – fell to $ 0.7583, a level not seen since February 5th.
US manufacturing data is due for release later on Wednesday and Powell is expected to give the same prepared testimony before a Senate banking committee.
The flight to safety weighed down on commodity prices, although oil prices rose on Wednesday as investors searched for bargains. However, the gains were held back, as lockdowns in Europe and an increase in US crude inventories dampened risk appetite and heightened oversupply concerns.
Brent crude futures rose 22 cents to $ 61.01 a barrel, after falling 5.9% to $ 60.50 a barrel on Tuesday. West Texas Intermediate (WTI) futures rose 17 cents to $ 57.93, after losing 6.2% the previous day.
Safe haven gold was higher at $ 1,729.3 an ounce.