The rout showed no signs of slowing as Europe’s main markets slumped 2-3 percent early on and the ongoing dive for safety sent yields on US government bonds, seen as probably the securest asset in the world, to fresh record lows.

Hopes that the epidemic that started in China would be over in months, and that economic activity would quickly return to normal have been shattered this week as the number of international cases have spiraled.

A sign reading "Please avoid shaking hands due to the current situation" is seen placed at the entrance of Swiss stock exchange operator SIX Group in Zurich, Switzerland February 27, 2020. (REUTERS/Arnd Wiegmann)

Bets are now that the Federal Reserve will cut US interest rates as soon as next month and other major central banks will follow to try and nurse economies through the troubles and stave off a global recession.

“Investors are trying to price in the worst case scenario and the biggest risk is what happens now in the United States and other major countries outside of Asia,” said SEI Investments Head of Asian Equities John Lau.

“These are highly uncertainty times, no one really knows the answer and the markets are really panicking.”

Read also: Trading suspension looms as Indonesian stocks plunge another 4%

Disruptions to international travel and supply chains, school closures and cancellations of major events have all blackened the outlook for a world economy that was already struggling with the US-China trade war fallout

MSCI’s all country world index, which tracks almost 50 countries, was down over 1 percent once Europe opened and almost 10 percent for the week - the worst since October 2008.

Wall Street shares had plunged 4.4 percent on Thursday alone which was its largest fall since August 2011. They have now lost 12 percent since hitting a record high just nine days ago, driving into so-called correction territory.

The CBOE volatility index, often called the “fear index”, jumped to 39.16, its highest in about two years, well out of the 11-20 range of recent months.

The index, which measures expected swings in US shares in the next 30 days, typically shoots up to around 50 when bear market selling hits its heaviest and approached almost 90 during the 2008/2009 financial crisis.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., February 27, 2020. (REUTERS/Brendan McDermid)

Pandemic warning

In Asia, MSCI's regional index excluding Japan shed 2.7 percent. Japan's Nikkei slumped 4.3 percent on rising fears the Olympics planned in July-August may be called off due to the coronavirus.

“The coronavirus now looks like a pandemic. Markets can cope even if there is big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“But at the moment, no one can tell how long this will last and how severe it will get.”

World Health Organization Director General Tedros Adhanom Ghebreyesus said the virus could become a pandemic as the outbreak spreads to major developed economies such as Germany and France.

About 10 countries have reported their first virus cases over the past 24 hours, including Nigeria, the biggest economy in Africa.

The global rout knocked mainland Chinese shares, which have been relatively well supported this month, as new coronavirus cases in the country fell and Beijing doled out measures to shore up economic growth.

Read also: Global shares head for worst week since 2008 financial crisis

The index of Shanghai and Shenzhen shares dropped 2.9 percent, on track for its first weekly loss in three.

Oil prices languished at their lowest in more than a year having plunged 12 percent this week - its worst since 2016 - while all the major industrial metals have dropped between 3 percent and 6 percent.

The appeal of guaranteed income sent high-grade bonds. U.S. yields plunging with the benchmark 10-year notes yield hitting a record low of 1.241 percent. It last stood at 1.247 percent.

That is well below the three-month bill yield of 1.436 percent, deepening the so-called inversion of the yield curve. Historically an inverted yield curve is one of the most reliable leading indicators of a US recession.

Expectations the Fed will cut interest rates to cushion the blow are rising in money markets. Analysts say Fed funds futures are now pricing in about a 75 percent chance of a 25 basis point cut at the central bank’s March 17-18 meeting.