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- Stocks were a sea of red on Thursday after investors were spooked by warnings from a number of Federal Reserve speaker that US economy needs stimulus to continue to recover.
- Federal Reserve Chairman Jerome Powell said more stimulus is needed while the Fed's vice-chair Richard Clarida said Wednesday the pandemic has put the US in a "deep hole" and the economy needed Congress to approve additional fiscal support.
- The sell-off in the broader market indices caused a rise in the dollar.
- Jeffrey Halley, senior market analyst at OANDA, said: "It is clear from the price action across markets overnight that the slump in equities has sparked a general move out of other asset classes and into US cash."
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Global stocks dropped on Thursday after a number of Federal Reserve officials warned the US economy would falter without further stimulus measures, driving investors out of risky assets, including gold and silver, and into the safety of cash, which boosted the dollar.
European shares fell, pushing the Stoxx 600 down 1%. Technology, oil and gas and banks were among the biggest sector losers, with German semiconductor maker Infineon down 1.5%, Deutsche Bank off 1.4%, while in London, oil producer BP lost 4.0%. Asian stocks also fell overnight, with Japan's Nikkei down 1.1% and the Shanghai Composite down 1.7%.
US futures were also pointing to a modest drop at the open between 0.1-0.6%, following on from Wednesday's steep declines.
Federal Reserve Chairman Jerome Powell urged Congress on Wednesday to agree to inject more cash into the economy. "We've basically done all the things we could think of," he said, referring to the central bank's policy of keeping interest rates near zero and pumping cash into the financial system.
"The Federal Reserve Chairman and five regional presidents formed an impromptu choir overnight. All six were singing from the same song sheet, the fiscal stimulus lament," Jeffrey Halley, senior market analyst at OANDA said. "To financial markets though, the harmony was off-key, and the audience took fright, with stock markets being sold heavily."
The dollar rose for a fifth day against a basket of currencies, making most headway against the so-called "commodities currencies", such as the Australian and Canadian dollars, which were, in turn, under pressure from a slide in gold and silver, as well as industrial raw materials such as copper and oil.
Democrats and Republicans in the US have been gridlocked in stimulus talks since July. The death of US Supreme Court Justice Ruth Bader Ginsburg over the weekend has exacerbated talks between both parties, and made it more unlikely a stimulus plan will be agreed before the November 3 presidential election.
The Fed's vice chairman Richard Clarida also said Wednesday the US economy remains in a "deep hole" and called for more fiscal stimulus.
The Australian dollar was last down 0.5% on the day against the US dollar at around $0.735 at 05:37 am ET, while against the Canadian dollar , the US dollar gained 0.1% to trade around $1.3399.
"The significant difference this time versus recent corrections is that really was sell-everything and move into cash; in this case, US Dollar cash," he said. "The price action overnight suggests markets are now in a heightened state of alert, with any upside price corrections likely to be rallies to sell into, not dips to buy."
Gold fell to its lowest in two months, dropping 0.84% on the day to $1,852.55 an ounce, while silver fell 4.1% to $22.14 an ounce, also its lowest since late July. Copper fell 1% to $6,529 a ton in London, while Brent crude futures dropped 0.1% to trade around $41.73 a barrel and West Texas Intermediate fell 0.2% to $39.86 a barrel.
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