Dow Jones crashes 7% as panic creeps back into stock markets, ASX to drop

By Simon Herrmann. Published at Jun 12, 2020, in Market Wrap

Financial markets tumbled overnight amid fears of a second outbreak of the coronavirus and as investors digest a confronting forecast from the US Federal Reserve.

The Cboe Volatility Index (VIX) rose to 40.79, up nearly 48%.

In the US, the three main financial indexes saw their worst day in months with the Dow Jones Industrial Average down almost 7%. The Federal Reserve, the United States' central bank, said in a statement earlier this week that the US faces a long road to recovery.

While this shouldn’t be a surprise it did catch the market off guard as investors have been betting on a fast a furious economic recovery, even pushing the Nasdaq to an all-time high despite the highest unemployment rate since the Great Depression.

It seems that for now the weeks-long rally have come to an abrupt halt. Energy and travel stocks were among the biggest losers as oil prices fell sharply overnight.

According to a leading health expert, US COVID-19 deaths could reach 200,000 in September, suggesting that the crisis is far from over. It’s a grim result for the reopening of US economy.

Australian futures are down 181 points, indicating that the ASX could slip 3% on the open.

European markets fall sharply, oil crashes

The Dow fell 1,861.82 points, or 6.9%, to 25,128. The S&P 500 lost 5.89%, to 3,002 and the Nasdaq ended the session down 5.27%.

Earlier, European and Asian shares also dropped, with the UK's FTSE 100 sinking about 4%. In Germany, the Dax fell 4.4%, while in France the CAC 40 ended 4.4% lower.

Brent Crude, the international standard for oil, tumbled 7.6% to $US38.55. Precious metals traded firm but did not move significantly in either direction. Gold prices were relatively steady at the US$1,730 mark.

The Australian share market ended a seven-day streak of gains yesterday. The ASX 200 fell 3.05% to be last quoted at 5,9670.6 points, however looks poised to drop significantly more when trading resumes at 10am in Sydney.

Bank and oil stocks were hit hard yesterday while only gold stocks traded higher. Miners held up relatively well as many metals somewhat outpaced equities.

The Australian bourse will be a sea of red on the open today, but it will be interesting to see how international futures markets evolve during the day as we head into the weekend.

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