US stocks fell almost 10 per cent in their worst day since the 1987 crash despite emergency actions by the Federal Reserve and the European Central Bank to mute the financial and economic damage from the coronavirus.
Markets responded violently on Thursday to Donald Trump's ban on European's travelling to the US, announced the previous night in a White House address intended to calm anxiety over the pandemic.
"This was the most expensive speech in history," said Luca Paolini, chief strategist at Pictet Asset Management.
"Investors are voting with their feet, and I can't blame them."
A further leg down in the final minutes on Wall Street left the S&P 500 off 9.5 per cent. European equities had already shed a tenth of their value. London's FTSE 100 fell 11 per cent. Thursday's action extended the S&P 500's losses to 26.7 per cent from its high less than a month ago.
The Fed promised midway through the trading day that it would inject trillions of dollars into the short-term lending markets — its third increase in intervention in four days — after analysts and investors said US government bond trading had begun to seize up in the market volatility.
The falls in Europe accelerated after the European Central Bank left interest rates on hold.
The ECB declined to join the Fed and the Bank of England in rate cuts and although it announced a package of other measures, investors had expected a reduction of the banks's main rate.
The week's intense rout suggested investors were bracing themselves for a worst-case scenario, including a global recession, the lockdown of large urban centres and a severe credit crunch, said Masanari Takada, strategist at Nomura. "The market has been jolted to the point of breaking," he added.
Travel and leisure stocks came under acute pressure. The cruise ship operator Carnival lost nearly a third of its value, while United Airlines fell 25 per cent and British Airways owner IAG declined 11 per cent.
Giant banks were also hard hit. Morgan Stanley, Citigroup and Wells Fargo all lost around 15 per cent of their value. The corporate fallout of the viral outbreak has deepened. UK companies including WHSmith, Go-Ahead and Travelex warned investors about the impact of the pandemic, while Cineworld, the world's second-biggest cinema chain, warned that, in a worst-case scenario, it would be unable to pay its debts, calling into question its ability to continue trading.
Alicia Levine, chief market strategist for BNY Mellon Investment Management, warned that the credit market could face a further shock if investment grade companies are re-rated as junk, forcing large investors like pensions to sell their bonds. "This will create forced selling, exacerbating the impact to the economy."
Oil prices, which crashed at the start of this week, fell on the expectation the US travel ban would cause more pain for the travel industry. The international benchmark Brent crude was down 7.2 per cent at US$33.22 ($54.55) a barrel.
- Additional reporting by Richard Henderson and Myles McCormick.
Written by: Adam Samson, Philip Georgiadis, Hudson Lockett, Leo Lewis and Colby Smith
© Financial Times