Oil and stock markets stabilise after historic rout - Financial Times

Global markets have rebounded from their heavy losses as investors welcomed signs that policymakers would launch significant stimulus measures to soften the economic blow from the global coronavirus outbreak.

European stocks gained more than 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 rose nearly 4 per cent as it partially unwound a fall of more than 7.5 per cent on Monday.

S&P 500 futures tipped the US benchmark to gain 4.5 per cent when trading begins later in the day, which would follow a 7.6 per cent fall in the index on Monday — its biggest single-day plunge since the global financial crisis. Futures can rise or fall by a maximum of 5 per cent outside of regular trade; they hit the downside limit on Monday.

The sharp turnround in sentiment comes as governments around the world prepare major interventions to help their economies through the anticipated disruption caused by the spread of the Covid-19 disease.

President Trump has promised a “major” economic relief package, including a possible payroll tax cut. Analysts at Citigroup said that while the exact make-up and size of the package remains unclear, “the type of programmes being discussed . . . are macroeconomically significant”.

Italy plans to suspend mortgage payments and other household bills across the entire country as it enters an unprecedented lockdown, while earlier on Tuesday China’s 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.

Still, several analysts and investors urged caution, as the virus continues to spread and its economic impact remains hard to quantify.

“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.

“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.”

The fading sense of panic on Tuesday prompted a rush out of havens, which have rallied furiously in recent weeks. The 10-year US Treasury yield jumped 23 basis points (0.23 percentage points) to 0.72 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.

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.

Asian markets recovered early losses to close higher, while the yen weakened 2 per cent to ¥104.50 per dollar, past the ¥103 level that is seen as an important threshold for the currency. 

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.

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.

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 09:48:17Z
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