The Fed, Australia GDP, coronavirus in focus

The Fed, Australia GDP, coronavirus in focus

Stocks in Asia were set to open lower on Wednesday following a tumble overnight on Wall Street despite the U.S. Federal Reserve announcing an emergency rate cut.

Futures pointed to a lower open for Japanese stocks. The Nikkei futures contract in Chicago was at 20,855 while its counterpart in Osaka was at 21,040. That compared against the Nikkei 225’s last close at 21,082.73.

Meanwhile, stocks in Australia declined in early trade, with the S&P/ASX 200 down about 1%. Investors will await the release of Australia’s GDP for the fourth quarter, expected to be out around 8:30 a.m. HK/SIN on Wednesday.

Overnight stateside, the Dow Jones Industrial Average closed 785.91 points lower at 25,917.41. The S&P 500 fell 2.8% to end its trading day at 3,003.37 while the Nasdaq Composite pulled back 3% to close at 8,684.09.

Meanwhile, the yield on the benchmark 10 year U.S. Treasury note fell below 1% for the first time ever, while gold prices jumped 2.9% to settle at $1,6440.40 per ounce. The 10-year yield was last at 0.999% while spot gold traded at $1,646.31 per ounce.

The moves came following a surprise decision by the Fed to cut rates by half a percentage point two weeks ahead of its scheduled meeting, the “evolving risks to economic activity” posed by the coronavirus. It was the central bank’s first such emergency action coming in between scheduled meetings since the financial crisis.

Central bank rate cuts won’t fix fear of catching the virus.

Joseph Capurso

Senior currency strategist, Commonwealth Bank of Australia

“The economic problem is fear of catching the virus,” Joseph Capurso, senior currency strategist at Commonwealth Bank of Australia, wrote in a morning note.

Capurso said “fear hurts the economy” as people stop activities such as going to work, and shopping.

“Central bank rate cuts won’t fix fear of catching the virus. Economies around the world will be disrupted from fear. That is why we suggest monitoring high frequency economic indicators for a turning point. Financial markets are likely too optimistic about the global economic outlook,” he said.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was last at 97.144 after seeing highs around 97.7 earlier.

The Japanese yen, often seen as a save-haven in times of economic uncertainty, traded at 106.94 per dollar after strengthening from levels above 108 yesterday. The Australian dollar was at $0.6583 after declining from highs above $0.66 yesterday.

What’s on tap for Wednesday:

Australia: Fourth quarter GDP data at 8:30 a.m. HK/SIN

— CNBC’s Fred Imbert contributed to this report.

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