Global markets have recovered some of their heavy losses as investors bet policymakers would launch new stimulus measures to soften the economic blow from the global coronavirus outbreak.
European stocks gained as much as 3 per cent on Tuesday as a measure of calm returned following a chaotic trading day which saw a wave of selling spread around the world as a collapse in the price of oil compounded economic concerns surrounding the spread of the coronavirus.
London’s FTSE 100 gained 3.1 per cent after falling 7.7 per cent in the previous session in its largest daily fall since the height of the 2008-09 financial crisis. Germany’s Dax 30 rose 2.9 per cent and France’s Cac 40 was 3.2 per cent higher.
S&P 500 futures tipped the US benchmark to rise 3.5 per cent when trading begins later in the day, which would partially reverse a 7.6 per cent fall in the index on Monday — its biggest single-day plunge since the global financial crisis.
“The expression ‘dead cat bounce’ was invented for mornings like this,” said Société Générale strategist Kit Juckes, who added “it would be foolish in the extreme” to assume calm is about to return to the market in the longer term.
The fading sense of panic on Tuesday prompted investors to sell havens, which have rallied furiously in recent weeks. The 10-year US Treasury yield jumped 21 basis points (0.21 percentage points) to 0.7 per cent, after having dived below the 0.5 per cent threshold for the first time on Monday. The 30-year Treasury yield rose back above 1 per cent. Bond prices fall as yields rise.
Those moves followed a promise by President Donald Trump of a “major” economic relief package to reduce the negative impact from the Covid-19 outbreak, including a possible payroll tax cut.
Brent crude, the international oil benchmark, rebounded 5 per cent to $36 a barrel on Tuesday, while the US marker West Texas Intermediate rose to $33. Saudi Arabia on Tuesday said it will supply the market with 12.3m barrels of oil per day next month in a severe escalation of its price war that rocked markets on Monday.
In China, the CSI 300 stock index closed 2.1 per cent higher after President Xi Jinping made his first visit to Wuhan, the city at the centre of the country’s outbreak, in a signal that the Communist party believed it had brought the epidemic under control.
Ken Cheung, chief Asian FX strategist at Mizuho, said Mr Xi’s visit to Wuhan had buoyed markets as had Mr Trump’s pledge of stimulus measures. But he warned that the recovery in markets “should prove to be shortlived” if governments did not follow through on their promises.
“You’ve got a thin semblance of sanity in the market today, but we are talking very thin indeed,” said one Tokyo-based broker. “There are some stabilisers out there — the low oil price is actually not bad for some of these big Asian economies — but there is nothing in the news that makes anything look remotely settled.”
In Japan, stocks staged one of their biggest intraday recoveries in decades on Tuesday as the yen fell sharply against the dollar and hedge funds and retail investors stampeded to cover short positions.
The yen weakened as much as 2 per cent to ¥104.52 per dollar, past the ¥103 level that is seen as an important threshold for the currency.
After shedding almost 4 per cent of its value in a bleak morning session that defied the buoyancy of oil markets and US futures, Japan’s Topix began a sharp reversal through the afternoon to close higher.
The total reversal of 6.2 per cent was described by traders in Tokyo as “astonishing” given the absence of positive news on the coronavirus and a growing scepticism over the effectiveness of government stimulus measures announced on Tuesday.
Traders and brokers said the day’s move had clearly exposed the type of investor that had been driving moves in recent days.
“The same very fast money that was driving the market down was now very rapidly covering short positions on the dollar and Japanese equities. In Japan’s case, the CTAs and the leveraged exchange traded funds so loved by Japanese retail investors were in full force,” said one Tokyo based dealer, referring to commodities trading advisers, a type of hedge fund.
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2020-03-10 08:10:42Z
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