Asian markets drop, gold jumps, as virus recovery hopes dim

Asia’s stock markets fell and gold hit a one-week high on Thursday as worries about a second wave of coronavirus infections and a dour assessment of the way back from the head of the US Federal Reserve dashed hopes for a quick recovery.

In Tokyo, the benchmark Nikkei average dropped 0.6 percent to 20,138.45 by the midday break, moving away from a two-month high hit earlier this week.

Federal Reserve Chair Jerome Powell warned of an “extended period” of weak economic growth while promising to use the US central bank’s power as needed and calling for additional fiscal spending to stem the fallout from the pandemic.

“The path ahead is both highly uncertain and subject to significant downside risks,” Powell said in a webcast speech.

Adding to investors’ concerns, a top World Health Organization official said the virus may never go away.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1 percent.

US stock futures fell 0.2 percent, after the S&P 500 index’s worst two-day drop in nearly a month.

Benchmark indexes in Australia, Hong Kong, Korea and China all fell about 1 percent.

“We don’t think the market is going to retest the lows, but it’s probably seen its best also, so I’m expecting a correction,” said Tony Huntley, chief investment officer at Melbourne-based fund manager Adansonia Capital.

“The issue is whether we get a second wave (of infections) … that would be my greatest fear.”

South Korea is dealing with a fresh outbreak in Seoul, while China has reimposed movement restrictions near its northeastern borders after a new outbreak was detected there.

Overnight, Wall Street’s three leading indexes closed lower for a second day in a row.

Bonds and the dollar rallied after Powell talked down the prospect of negative interest rates in the US and extended gains on Thursday. Yields on benchmark US 10-year Treasuries fell slightly to 0.6412 percent.

Oil prices slipped in spite of a surprise reduction of US inventories and gold was firmly above the $1,700 mark, touching a week-high $1,719.11 per ounce.

Markets are looking ahead to the release of the European Central Bank’s latest economic bulletin at 08:00 GMT and the latest US jobless claims data at 12:30 GMT.

Slow going

Equity markets have wavered since April’s rally as investors and authorities try to weigh the risks of re-starting economies quickly against the financial ruin that lockdowns have wrought while worrying about a flare-up in infections.

“We’re going to slowly open the economy,” US Treasury Secretary Steven Mnuchin told media outlet Fox News on Wednesday, as the White House presses hard to get things moving again.

“But there is also a risk that we wait too long, there is a risk of destroying the US economy and the health impact that that creates.”

The country’s top infectious disease expert, Dr Anthony Fauci, has warned that a premature lifting of lockdowns could lead to additional outbreaks.

Caution is also prevailing in Europe as well as Australia and New Zealand, where restrictions are beginning to relax.

“Global markets are still licking their wounds, and while equities remain robust, gains are slowing,” said Societe General FX strategist Olivier Korber.

“A second pandemic wave is unfortunately not a tail risk, so the full extent of the economic damage may be underestimated,” he said, recommending a long position in euro and the kiwi dollar which has gained nearly 9 percent this year as market volatility has increased.

Elsewhere the Australian dollar slipped to a one-week low of $0.6420 after the country posted its biggest plunge in employment on record.

A rising US dollar also held the kiwi under 60 cents at $0.5974 and had the euro and pound under pressure.

Brent crude slipped slightly to $29.06 per barrel and US crude was steady at $25.36 per barrel.