Bear all

Yesterday’s 5.9% slump in the Dow Jones Industrial Average pushed the blue-chip index into a bear market, and that trend is spreading across the world today. In Asia, Hong Kong’s Hang Seng Index closed within 1% of a 20% drop from its most recent peak while Japan’s Topix Index finished the session 4% lower. Europe’s Stoxx 600 Index plunged 6.1% by 5:45 a.m. Eastern Time, with the travel sector falling more than 10% in the opening hours of trading. S&P 500 futures were down 5%, the 10-year Treasury yield was at 0.717% and gold was slightly higher.

Travel ban

While the ongoing coronavirus pandemic is the reason for market weakness at the moment, today’s sharp selloff is driven by investor reaction to President Donald Trump’s speech yesterday in which he announced unprecedented travel restrictions from Europe. The 30-day halt on visitors from the EU does not include the United Kingdom or Ireland as both countries are not members of the European free travel area. Elsewhere, both the U.K. and Australia launched large fiscal stimulus packages to help reduce the economic effects of the outbreak.

Light at the end of the tunnel

China, the country where the virus first started, said that the outbreak in the country is “generally over” after it only reported 15 new cases of the infection. Italy is taking a leaf from the China virus playbook, with the country’s prime minister further tightening restrictions on movement in the country, announcing the closure of all pubs, restaurants and all non-essential businesses. Scandinavian countries are also upping their response, with Denmark closing all schools and telling workers to stay at home, while Norway shut some borders.

ECB

While much of the official response has been to increase travel restrictions and offer fiscal aid, monetary authorities have been stepping up to the plate to offer whatever support to the economy they can. The European Central Bank has been notably absent from the rush to stimulus so far, but that is expected to change when it announces the  latest monetary policy decision at 8:45 a.m., followed by a press conference with President Christine Lagarde at 9:30 a.m. While a small reduction in rates is forecast, market expectations for more measures such as increased asset purchases, targeted loan operations and supervisory relief for banks are high in the wake of Lagarde’s comments to European leaders earlier in the week.

Coming up…

At 8:30 a.m. weekly initial jobless claims data is expected to show a small increase, while February PPI, also released at that time, is forecast to drop to -0.1%. In Washington, Congress will get a briefing on the coronavirus outbreak, while President Trump welcomes Irish Prime Minister Leo Varadkar to the White House. Oracle Corp., Adobe Inc., and Broadcom Inc. are among the companies reporting earnings today.