GLOBAL MARKETS-Stocks drop for third day as recovery hopes falter

* The path ahead is uncertain - Fed Chair Powell
* The virus may never go away - WHO
* European shares open over 1.5% lower, Hang Seng -1%
* Dollar up, gold touches 1-week peak
* Oil gains but IEA warns of record demand slump
* BOJ says no need to deepen negative rates for now

By Marc Jones
LONDON, May 14 (Reuters) - World stock markets fell for a
third day running on Thursday after a sobering warning from the
World Health Organization that the coronavirus may never go
away.
The head of the Federal Reserve quashed talk of U.S.
interest rates going negative to kickstart investment and new
outbreaks of the virus in South Korea and China and some dour
assessments of the global economy aroused concern too.
Europe's main bourses sank 1.5% in early moves .STOXX
.EU as traders once again took shelter in safe-haven
government bonds. GVD/EUR
"The path ahead is both highly uncertain and subject to
significant downside risks," the Fed Chair Jerome Powell said of
the economy, as he warned of a recession worse than any since
World War Two. His suggestion that the Fed's firepower may not be
sufficient to avert deep damage also clearly spooked markets. He
called for additional fiscal support but a $3 trillion stimulus
bill seems to have run aground with senate Republicans for now.
Asian markets had followed Wall Street lower overnight with
MSCI's broadest index of Asia-Pacific shares finishing down
.MIAPJ0000PUS 1.3% and Japan's heavyweight Nikkei .N225
closing 1.75% in the red.
"We don't think the market is going to re-test the lows, but
it's probably seen its best also, so I'm expecting a
correction," said Tony Huntley, chief investment officer at
Melbourne-based fund manager Adansonia Capital.
"The issue is whether we get a second wave (of coronavirus
infections) ... that would be my greatest fear."
China has re-imposed movement restrictions near its borders
with North Korea and Russia after a new outbreak was detected
there and South Korea is working to contain an outbreak centred
around bars and nightclubs in Seoul. "It is important to put this on the table: this virus may
become just another endemic virus in our communities, and this
virus may never go away," WHO emergencies expert Mike Ryan told
an online briefing on Wednesday. Bonds and the dollar =USD had both rallied after Fed Chief
Powell talked down the prospect of negative interest rates in
the United States. Yields on benchmark U.S. 10-year Treasuries
US10YT=RR fell to 0.6185% having been 0.74% just over a week
ago. US/
European bond yields continued to fall for the most part
too, despite more government spending which will ramp up debt
levels. Italy's government had unveiled its second fiscal
package on Wednesday evening, worth 55 billion, or roughly 3% of
its 2019 nominal GDP.
Deutsche Bank now estimates that Rome's debt-to-GDP level
will hit an eyewatering 200% next year.
"Swings in risk appetite after yesterday's Mr. Powell's
cautious tones and more in general related to the developments
of lockdown measures will remain an important driver,"
UniCredit's analysts said.

RECORD FALL
In the commodity markets, a surprise drawdown of U.S.
inventories helped oil prices make around 2%, but the broader
caution capped rises. The International Energy Agency (IEA)
estimated oil demand will see a record fall in 2020
keeping Brent just below $30 a barrel. O/R
Gold pulled back from a one-week high hit early in the Asian
session, but held comfortably above $1,700 an ounce at
$1,711.20. GOL/
Markets are looking ahead to the latest U.S. jobless claims
data at 1230 GMT.
Equity markets have wavered since April's rally as investors
and authorities try to weigh the risks of re-starting economies
quickly against the financial ruin that lockdowns have wrought,
while worrying about a flare-up infections.
Australian jobless data bought the latest sign of trouble,
with a record plunge in employment dragging the currency to a
one-week low of $0.6420. Already bleak expectations and strong demand for Aussie
bonds kept it from steeper falls. AUD/
In the United States, the Trump Administration is pressing
on with re-opening plans despite urgings of caution from medical
experts.
"We're going to slowly open the economy," U.S. Treasury
Secretary Steven Mnuchin told Fox News on Wednesday. "But there
is also a risk that we wait too long, there is a risk of
destroying the U.S. economy and the health impact that that
creates."
Caution is also prevailing in Europe and the Antipodes,
where restrictions are beginning to relax.
"Global markets are still licking their wounds, and while
equities remain robust, gains are slowing," said Societe General
FX strategist Olivier Korber.
"A second pandemic wave is unfortunately not a tail risk, so
the full extent of the economic damage may be underestimated,"
he said, recommending a long position in euro/kiwi EURNZD=
which has gained nearly 9% this year as market volatility has
increased.

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