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A dire economic outlook from the chief of the Federal Reserve sent US stocks and Australian index futures sharply lower this morning.

ASX SPI200 futures fell 58 points or 1.1 per cent as the Dow dropped for a third straight night.  

US stocks tumbled after Fed Chair Jerome Powell warned the path to recovery was “highly uncertain and subject to significant downside risks”. Powell flagged a long, slow recovery, but disappointed investors looking for fresh central bank support.  

The S&P 500 slumped 50 points or 1.75 per cent. The Dow declined 517 points or 2.17 per cent, bringing its two-day loss close to a thousand points. The Nasdaq fell back into negative territory for the year after losing 139 points or 1.55 per cent.

Powell called on the federal government to do more to prevent a prolonged recession. While he said the Fed would “use our tools to the fullest”, he gave no indication what the next move might be. Market observers said the tone of his remarks was more pessimistic than normal.   

“The market seems to be looking to the Fed for support and the Fed said look somewhere else,” Jeff Kleintop, chief global investment strategist at Charles Schwab, told Reuters. Hopes for a fresh stimulus measures dulled this morning after President Donald Trump described the latest House of Representatives stimulus bill as “dead on arrival”.

“Millions of Americans are thinking they’re going to wake up from it. They’re just going to go back to work or reopen their restaurant,” Jason Thomas, chief executive officer at Savos Investments, told MarketWatch. “It’s becoming more and more clear that’s just not how it plays out.”

The mood on Wall Street was already jittery amid concerns about inflated stock valuations and the danger of a second wave of infections if lockdown restrictions are lifted prematurely. The S&P 500 skidded 2.05 per cent on Tuesday after White House infectious disease expert Dr Anthony Fauci warned of more “suffering and death” and the risk of overwhelming the health system if states go too early.

US stocks have recovered so swiftly from their pandemic lows that investors are questioning valuations. Billionaire hedge fund investor David Tepper said the current market was the most over-valued he has seen since the dot-com boom of the late 1990s. The S&P 500 had rebounded more than 30 per cent from its bear market low to within 13 per cent of its old peak. The Nasdaq fared even better, drawing within 6 per cent of its record.

All 11 US sectors declined overnight. Energy stocks fell 4.4 per cent, financials 3 per cent and industrials 2.6 per cent. Utilities and consumer staples suffered least with losses of 0.9 per cent. Airline stocks hit their lowest level of the crisis a day after Boeing’s CEO warned a major US airline could go bust. Cruiselines fell at least 5 per cent.

A mixed night for resource stocks saw BHP’s US-listed stock edge up 0.56 per cent after its UK-listed stock shed 0.72 per cent. Rio Tinto gained 1.62 per cent in the US and 0.46 per cent in the UK. The spot price for iron ore landed in China put on $1 or 1.1 per cent at US$91.15 a dry ton.

An unexpected fall in US crude stockpiles failed to prevent a slide in oil. Brent crude settled 79 cents or 2.6 per cent lower at US$29.19 a barrel. The Energy Administration said US crude inventories declined last week for the first time in 16 weeks.

Gold rose for a second night as traders rotated into havens. Gold for June delivery settled $9.60 or 0.6 per cent ahead at US$1,716.40 an ounce.

Industrial metals retreated as new coronavirus clusters in China and South Korea raised the prospect of a second wave of infections. Benchmark copper on the London Metal Exchange eased 0.2 per cent to US$5.245 a tonne. Aluminium slid 0.1 per cent, nickel 0.5 per cent, lead 0.8 per cent, zinc 1.2 per cent and tin 0.4 per cent.

The dollar eased 0.23 per cent to 64.54 US cents.

The S&P/ASX 200 briefly shed more than a hundred points here yesterday before rebounding to finish 0.35 per cent ahead. How today plays out will largely depend on the reaction to the 11.30 am EST April employment report. Economists expect the report to show more than half a million Australians lost their jobs last month, lifting the jobless rate from 5.2 per cent to around 8.3 per cent. Wall Street has benefit claims on tap tonight.

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