Stock markets in Europe and Asia dropped sharply Monday as continued uncertainty about the coronavirus outbreak's global fallout overshadowed a hefty monetary stimulus package by the U.S. Federal Reserve.
The Fed announced Sunday a 100-basis-point cut to interest rates, to a target range of zero to 0.25%, and a $700 billion target for purchases of U.S. Treasuries and mortgage-backed securities. The central bank also announced steps to provide sufficient liquidity to ensure markets can function smoothly.
Following the Fed announcement, S&P 500 futures dropped 5%, hitting the maximum they can fall in a single trading session, known as limit down.
European markets suffered early Monday. The FTSE 100 was down about 7%, the FTSE 250 dropped about 12% and the FTSE All-Share index fell almost 8% at about 11:30 a.m. Greenwich Mean Time. The S&P 350 was down about 7% and the DAX index had dropped almost 8% by that time.
Markets also fell in Asia. Australia's S&P/ASX index lost 9.7% Monday, with Hong Kong's Hang Seng index off 4.3%, South Korea's KOSPI index down 3.2% and Japan's Nikkei 225 falling 2.5%.
Mainland Chinese markets, which had held up relatively well in recent weeks, also suffered Monday, against the backdrop of weak economic reports during the day for Chinese industrial production and retail sales. The Shenzhen Composite index tumbled 4.8%, while the Shanghai Composite index lost 3.4%.
Despite the Fed's substantial policy moves, and hopes they'll be matched by equally strong fiscal stimulus measures, market veterans said a critical mass of uncertainty continues to deter potential buyers.
While valuations have fallen to interesting levels, uncertainties about how bad the coronavirus downturn could be and how long it could last remain a tail risk for now, said Philip Naylor, a principal consultant and senior member of the capital markets and asset allocation team at Melbourne-based investment consultant Frontier Advisors.
Markets are "flying blind," with the speed of developments making it tough to say how long economic activity will remain depressed and which businesses will be able to fight their way through it, said Michael Dyer, Hong Kong-based investment director, multi-asset, with M&G Investments.
The Fed's package of monetary steps Sunday was "massive and well-crafted," and will set the stage for a more robust recovery once the contagion is contained, wrote Sonal Desai, San Mateo, Calif.-based chief investment officer at Franklin Templeton Fixed Income, in a commentary.
Ms. Desai said her base-case scenario calls for the spread of the virus, formally known as COVID-19, to be brought under control within the next four to six weeks, setting the stage for a V-shaped recovery to start in 2020.
If, instead, the impact of the virus paralyzes activity through the summer, she said, "the economy will likely suffer a recession for 2020 as a whole and then go through an initial phase of slow recovery before being able to stage a more decisive acceleration."