Asian shares struggled to find footing on Wednesday and bonds held stunning gains, as an emergency rate cut from the US Federal Reserve seemed to stoke rather than soothe fears over the coronavirus' widening global economic fallout.
The surprise 50 basis point cut came with commentary highlighting the limits of monetary policy, and Wall Street indexes fell sharply. Gold surged and the dollar sank.
The yield on benchmark 10-year US Treasuries, which falls when prices rise, hit a once unimaginable low of 0.9060% and has held just above that level in Asian trade.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4% amid choppy trade across the region, though most of the gains were confined to South Korea. Japan's Nikkei oscillated between flat and modest gains.
"The US Federal Reserve's attempt to surprise the market may have misfired," said Kerry Craig, strategist at JP Morgan Asset Management in Melbourne.
"While the action was intended to steady market confidence, the sharpness of their reaction and the off-schedule timing of the move could be interpreted as the Fed being much more concerned about the economic impact than first thought."
Australia's S&P/ASX 200 index fell 1.5%, while stocks in Hong Kong and China traded flat. Korean stocks bucked broader weakness, rising 2% after the government announced a stimulus package of 11.7 trillion won ($9.8 billion) to mitigate the impact of the virus outbreak.
Futures for the S&P 500 were volatile as the results of Democratic Party primaries came in, eventually firming 1% as moderate Joe Biden looked set to win five big states compared with two for radical Bernie Sanders.
The US 10-year Treasury yield steadied at 0.9861%.
The dollar touched a five-month low against the safe-haven Japanese yen and slipped against most other Asian currencies.
"Given the way that the market's reacted, it's telling you that there's a little bit of panic," said Andrew Gillan, head of Asia ex-Japan equities at Janus Henderson in Singapore.
"They're a bit worried that interest rate cuts are not going to make a massive difference...and what's going to be required is probably going to be more fiscal stimulus," he said, his fund having invested, for example, in Chinese cement and construction stocks in anticipation of more government support measures.
Limits Of Monetary Policy
The Fed's surprise move - its first off-schedule cut since the depths of the financial crisis more than a decade ago - followed a massive shift in money market pricing.
Futures swung rapidly late last week to expect such a cut at the Fed's March meeting. Now they imply another 50 basis points of easing by July, even as the investors and the Fed itself raise questions about the efficacy of easing to deal with a public health crisis.
"We do recognise that a rate cut will not reduce the rate of infection, it won't fix a broken supply chain; we get that," Fed Chairman Jerome Powell told reporters at a press conference.
The remark sent Wall Street from positive territory into the red. Dow Jones industrial average, Nasdaq composite and S&P 500 each closed down close to 3%.
More than 3,000 people have been killed by the coronavirus, about 3.4% of those infected - far above seasonal flu's fatality rate of under 1%.
It continues to spread quickly beyond the epicentre in China, with Italy overnight reporting a jump in deaths to 79 and South Korea reporting more than 500 new cases on Wednesday.
"The question here is whether a conventional interest rate response is sufficient," said Sameer Goel, chief strategist, Asia macro, at Deutsche Bank in Singapore.
"It's not an economic shock, it's a shock driven by a non-economic factor. It's still not clear how big the problem ultimately is, or could be, and until you know that, it's hard to know how much medicine to apply to it."
In currencies, the US dollar fell across the board, sending it to an eight-week low against a basket of currencies , while pushing the euro to an eight-week peak.
In Asian trade, the yen hit its highest against the greenback since October, at 106.84 per dollar, before paring gains. The Australian dollar advanced to $0.6603.
Oil prices firmed on expectations of production cuts, with Brent rising 90 cents to $52.79 per barrel and US crude up 1.9% at $48.06 a barrel.
Gold rose 0.2% to $1642.21 an ounce.