London — World markets fell on Wednesday as the coronavirus threat ensured an ugly start to the second quarter for equities and commodities.

Traders headed for the safety of government bonds, the dollar and gold as evidence continued to mount that the virus is sending the global economy into a deep recession.

Tokyo’s Nikkei slumped 4.5% after the worst plunge in factory activity in almost a decade. The pan-European Stoxx 600 sank 3.2% and Wall Street futures dived 3.1% after a dire forecast of likely US Covid-19 deaths.

“President [Donald] Trump warning about two dreadful weeks ahead and 100,000 to 240,000 deaths in the coming months is definitely putting a negative tone on the market,” said Société Générale strategist Kit Juckes. “It is pretty risk-off out there. It is definitely a day of lower bonds yields, falling equity indices and tin hats.”

Wall Street tumbled on Tuesday, capping the biggest quarterly fall since 1987 for the Dow Jones and the steepest for the S&P 500 since the financial crisis. That it all happened in a month and from record highs made it feel all the more brutal.

US economic activity is likely to be “very bad” and the unemployment rate could rise above 10% because of efforts to slow the spread of the coronavirus, Cleveland Federal Reserve Bank president Loretta Mester told CNBC.

There had been some glimmers of hope during Asian trading. China’s factory activity improved in March after plunging in February. It just scraped into positive territory, beating analysts’ expectations.

Blue-chip Chinese stocks failed to hold their gains, however, though Australian shares bounced 3.5% as a slowdown in new coronavirus cases there and rising iron ore prices lifted the market. But Europe’s early plunge meant MSCI’s main gauge of world stocks was down nearly 1% having slumped 22% since the start of the year.

The number of coronavirus infections globally headed towards 875,000, excluding recoveries. In a positive development, Deutsche Bank analysts noted the global growth in new cases was below 10% for two consecutive days, having exceeded that rate for most of the past two weeks.

Health officials were not upbeat, however. A World Health Organisation (WHO) official warned that even in the Asia-Pacific region, the epidemic is “far from over”.

Oil, toil and trouble

In currency markets, the dollar’s safe-haven appeal saw it continue to rise. The yen held its ground, but the euro dropped back under $1.10 as traders braced for German manufacturing and EU unemployment figures.

The pound fell to $1.2350 and plenty of commodity-exposed currencies from the Australian dollar to the Russian rouble saw 1% losses.

“Don’t fight the Fed” is the adage, but markets seem to be doing their best to do that anyway — a new set of Fed forex swap lines on Tuesday was meant to reassure markets that the US central bank was there to ensure an adequate supply of dollars.

“In my view, markets have still not fully priced in the damage from the coronavirus, with some people still talking about V-shaped recovery,” said Masahiko Loo, portfolio manager at Alliance Bernstein in Tokyo. “The US and Europe are hit by the first wave now, but as you can see in Asia, there could be more waves from re-imported cases. Human psychology does not quickly recover either after an experience like this.”

Demand for the guaranteed income of government bonds pushed the yield on the benchmark 10-year US treasury note down to 0.63%. Italian bond yields also held steady as the benefit of recent European Central Bank (ECB) measures meant the country — which has been one of those hit hardest by the coronavirus — successfully sold €8.5bn of debt.

Commodity markets were much rougher. Brent crude fell 5.81% to $24.80 a barrel as the US, Russia, and Saudi Arabia jostled over a huge oversupply of oil. Crude oil benchmarks ended the quarter with their biggest losses in history. Both US and Brent futures got hammered throughout March by the pandemic and a Saudi-Russia price war.

Global demand has been cut sharply by travel restrictions. Forecasters at major merchants and banks see demand slumping by 20% to 30% in April, and for weak consumption to linger for months.