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Equities slide, bonds rise on Fed warning of prolonged recession

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05/13/2020 | 04:19pm EDT
The spread of the coronavirus disease (COVID-19) in New York

By David Randall

Stock markets tumbled on Wednesday on fears about a second wave of coronavirus infections and warnings from Federal Reserve Chairman Jerome Powell that the U.S. faces a "significantly worse" recession than any downturn since World War Two, while bonds rose on a safety bid.

Powell's comments came as parts of the global economy are starting to reopen following lockdowns aimed at curbing the spread of the virus, which has pushed unemployment rates to the highest level since the Great Depression of the 1930s. Benchmark equity indexes are up 25% or more from their March lows in anticipation of further government stimulus programs.

"Earnings season is largely behind us and we have entered the phase two of COVID-19 as de-confinement of economies begins, and that is creating a lot of uncertainties on a daily basis, which is weighing on markets," said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. "We don't think this is the start of a new correction. Markets went too far, too fast and this is the consolidation."

MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 1.59% following broad losses in Europe and Asia.

Wall Street posted a second straight day of steep declines. The Dow Jones Industrial Average fell 516.81 points, or 2.17%, to 23,247.97, the S&P 500 lost 50.12 points, or 1.75%, to 2,820, and the Nasdaq Composite dropped 139.38 points, or 1.55%, to 8,863.17.

Leading U.S. infectious disease expert Dr. Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to new outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the country's economy to its knees.

"We now have to see how this reopening plays out, and there are a lot of risks," said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

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

Safe-haven assets rose as investors positioned for an extended economic downturn. Benchmark 10-year U.S. Treasury notes last rose 13/32 in price to yield 0.6492%, from 0.692% late on Tuesday. The dollar index <=USD> rose 0.19%, with the euro down 0.28% to $1.0816.

Oil markets, which have plummeted this year due to a combination of a collapse in demand and a supply glut, slid despite expectations of deeper production cuts. U.S. crude slipped 1.28% to $25.45 per barrel, and Brent was at $29.20, down 2.6% on the day.

(Reporting by David Randall; Editing by Bernadette Baum and Leslie Adler)

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL 0.36% 25827.36 Delayed Quote.-9.50%
EURO / US DOLLAR (EUR/USD) 0.05% 1.1248 Delayed Quote.0.23%
EURO 50 SELECT 4.75% DECREMENT (SHLE, UHD) -0.62% 717.000955 Real-time Quote.-14.28%
EUROPE SELECT GREEN 50 5% DECREMENT (DIV, UHD) -0.48% 1506.93525 Real-time Quote.-7.87%
LONDON BRENT OIL 0.21% 42.76 Delayed Quote.-36.24%
NASDAQ 100 0.61% 10341.891881 Delayed Quote.18.42%
NASDAQ COMP. 0.52% 10207.628547 Delayed Quote.13.76%
RISE, INC. 6.90% 31 End-of-day quote.3.33%
S&P 500 0.45% 3130.01 Delayed Quote.-3.12%
SWISS RE LTD -0.40% 74.4 Delayed Quote.-31.28%
THE GLOBAL LTD. 0.97% 209 End-of-day quote.-55.63%
THE LEAD CO., INC. -1.39% 356 End-of-day quote.-8.72%
WORLD CO., LTD. -1.19% 1496 End-of-day quote.-44.41%
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