The dollar gained as investors rushed to secure liquidity, pushing the British pound down 0.9% to its lowest since 1985 and rising 1% against major currencies to its highest since March 2017.
Bond markets stablised somewhat after the European Central Bank pledged late on Wednesday to buy 750 billion euros ($820 billion) in sovereign debt through 2020.
That brought the ECB’s planned purchases for this year to 1.1 trillion euro, with the new purchases alone worth 6% of the euro zone’s GDP.
Government bond yields in Italy and across the euro zone dropped after the ECB’s emergency measures, though European stocks fell back into negative territory after arresting their rout in early trading.
“The announcement (the ECB) has made has gone some way to comforting markets that borrowing costs in those economies won’t be allowed to spiral higher,” said Mike Bell, global market strategist at J.P. Morgan Asset Management.
Europe’s broad Euro STOXX 600 fell 0.9% after gaining more than 1% in early trading. Indexes in Frankfurt , Paris and London’s FTSE all saw advances wiped out.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan slumped by 4%. Korea and Taiwan led the losses as the index plunged to a four-year low, with circuit breakers triggered in Seoul, Jakarta and Manila.
Expected price swings for some of the world’s biggest currencies rocketed to multi-year highs as the demand for dollars forced traders to dump currencies across the board.
For the British pound versus the dollar, expected volatility gauges leapt to 24.4%, their highest level since before the 2016 Brexit vote.
“One unresolved and really critical issue is what’s going on in volatility,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “I think that volatility needs to stabilise before the broader market can heal.”
MSCI’s world equity index, which tracks shares in 49 countries, fell 0.9%. Wall Street futures also fell, pointing in volatile trading to losses of around 2%. .
ITALIAN YIELDS FALL
Italy, which has seen its borrowing costs jump in recent days, led the drop in yields after the ECB move.
Its two-year bond yields slumped by than 100 basis points to 0.41%, heading for their biggest one-day fall since 1996. Italy’s 10-year bond yields slid as much as 90 bps to 1.40%.
The gap over the safer German Bund’s yields tightened almost 100 bps from Wednesday’s closing levels and were set for the biggest daily drop since the 2011 euro one crisis.
Markets elsewhere failed to respond to central bank action. Before the ECB move, the U.S. Federal Reserve promised a liquidity facility for money market mutual funds and the Bank of Japan made two unscheduled bond purchases totalling 1.3 trillion yen ($12 billion).
The Australian central bank slashed interest rates to a record low of 0.25%.
Traders reported huge strains in bond markets, however, as distressed funds sold any liquid asset to cover losses in stocks and redemptions from investors.
Benchmark 10-year sovereign bond yields in New Zealand, Malaysia, Korea and Singapore and Thailand surged as prices fell, and U.S. 10 year Treasuries rose 10 basis points through the session.
“Not only central banks but governments are throwing everything at the economy right now, but markets aren’t responding,” said Luca Paolini, chief strategist at Pictet Asset Management.
Commodities also fell as the virus outbreak worsened. The pandemic has killed almost 9,000 people globally, infected more than 218,000 and prompted widespread emergency lockdowns.
Gold fell 1%, and like other assets was buffeted by volatility. Copper hit its down-limit in Shanghai.
Oil jumped after an overnight plunge to an 18-year low in Asian trade. Brent was last up $1.16 to $26.04.
Underlining expectations of severe economic damage from the pandemic, J.P. Morgan economists forecast the U.S. economy will shrink 14% in the next quarter and the Chinese economy will lose more than 40% on an annualised basis in the current one.