Asia stocks set to tumble as investors fear worst recession since 1930s

By Koh Gui Qing

NEW YORK (Reuters) – Asian stocks look set to tumble on Thursday, as fears that the world is in its worst recession since the 1930s were heightened by data showing U.S. retailers suffered a record sales collapse in March due to the coronavirus outbreak.

E-Mini future for the S&P 500 fell 0.76% while Nikkei futures pointed to a loss of 70 points, mirroring a 2.2% decline in the S&P 500 <.SPX> overnight. [.N]

The flight from risk helped the dollar rebound against major currencies and nudged gold off a 7-1/2-year high, while expectations that a recession will depress demand for oil pushed crude prices to 18-year lows overnight.

“The U.S. (and global) economy is in a deep recession,” Kim Mundy, an analyst at Commonwealth Bank of Australia, wrote in a note, adding that a downturn will support the dollar.

“The unemployment rate in the United States will almost certainly lift above 10% shortly.”

Data showed on Wednesday that U.S. retail sales had plunged 8.7% in March, the biggest drop since the government started tracking the series in 1992. Output at factories was also shown to have declined by the most since 1946.

The United States is set to release its weekly jobless claims data on Thursday and the market expects a further 5.105 million claims, according to a Reuters poll.

The grim outlook was echoed by lenders with major U.S. banks Goldman Sachs Group Inc and Citigroup Inc warning of future loan losses as they posted drops in profits.

The coronavirus, which triggers a respiratory illness, has caused two million infections worldwide and over 131,000 deaths, wreaking havoc on the global economy as governments shut schools and businesses and order people to stay home to slow its spread.

Though countries including Spain, Italy and Germany are re-opening some businesses, analysts say it is unclear when the global economy will recover to its pre-pandemic days. In the United States, President Donald Trump said he will announce “guidelines” for re-starting the economy on Thursday.

Evidence that the global downturn has slashed the demand for oil again drubbed U.S. crude prices. The United States had reported overnight its biggest weekly inventory build on record, following a warning from the International Energy Agency that oil demand will dive 29 million barrels a day in April to levels unseen in a quarter of a century. [O/R]

U.S. crude was last up 1.7% at $20.23, recovering from an earlier low of $19.51, while Brent crude was down 5.4% at $28. [O/R]

Bracing for tough times ahead, investors piled into bonds. The yield on U.S. 30-year Treasury Inflation Protected Securities (TIPS) hit a record low of -0.183%, while that of U.S. 10-year TIPs fell to a seven-year trough of -0.553%.

U.S. two-year yields were at 0.201% after dropping below 0.2% for the first time in three years, and 10-year yields were at a one-week low at 0.635%, more than 100 basis points off their January levels. [US/]

The demand for safety helped the dollar index <=USD> rise 0.7% to 99.564. It was steady against the Japanese yen after gaining as much as 0.25% overnight, while the euro recovered to $1.0909, from a low of $1.0859. The Australian dollar , which is leveraged to global growth, was down 0.1% at $0.631. [USD/]

A stronger dollar pulled gold prices back from a 7-1/2-year high struck this week, helped by recessionary fears and a tide of cheap money from central banks. It was last at $1,714 an ounce. [GOL/]

The International Monetary Fund warned on Tuesday that the world economy is set to shrink by 3% this year in the steepest downturn since the 1930s Great Depression.

Graphic: Asian stock markets https://product.datastream.com/dscharting/gateway.aspx?guid=516bc8cb-b44e-4346-bce3-06590d8e396b&action=REFRESH

(Reporting by Koh Gui Qing; Editing by Sam Holmes)