Stock markets swing in volatile trading after Wall Street rout

Stock markets swing in volatile trading after Wall Street rout

Investors on edge amid fears over economic impact of widespread shutdowns

European stocks came under fresh bouts of pressure in another day of hectic trading across global markets.

London’s FTSE 100 swung throughout the morning session as volatility continued to pulse through stock indices. The London blue-chip benchmark was flat by late morning on Tuesday, having opened 3 per cent higher before selling off. The European composite Stoxx 600 was also level after rising as much as 3.5 per cent earlier in the session.

S&P 500 futures pointed to gains of 1.4 per cent at the open on Wall Street. They had switched between positive and negative during the trading day, at one point implying a 4 per cent rise.

Investors had warned that any rebound would be shortlived without firm indications that Europe and the US were bringing the coronavirus outbreak under control. The health crisis has brought activity in large parts of Europe to a virtual standstill, and there are lingering questions over how effective monetary and fiscal policy can be to mitigate its effects.

Jim Reid, a strategist at Deutsche Bank, said that “the impact of the various western world shutdowns will mean that at its peak the Covid-19 impact on the global economy will likely be worse than the peak of the financial crisis.”

The UK was set to outline a rescue package for businesses on Tuesday, while France promised a €45bn economic aid package as it forecast its economy would contract this year.

John Woods, Asia-Pacific chief investment officer at Credit Suisse, said despite the recent sharp losses he was still not recommending to his clients to re-enter equity markets without signs of stronger fiscal measures. “The knife is still falling,” he said.

Earlier, Asia-Pacific markets rose in another volatile session. Australia’s S&P/ASX 200 stock index jumped 5.8 per cent after plunging nearly 10 per cent a day earlier. Japan’s Topix was 2.6 per cent higher after earlier falling as much as 3 per cent. 

Overnight, the S&P 500 plunged 12 per cent in its biggest one-day fall since Black Monday in October 1987 as the US and other countries tightened restrictions on public movements to curb the spread of the virus. Many global stock indices have fallen into bear markets due to concerns the coronavirus will lead to a global recession this year.

Traders in Tokyo said the reports of stimulus from the White House had fuelled speculation that the US was “one step closer” to the kind of stimulus package investors wanted to see.

But Mohammed Apabhai, head of Citi’s Asia-Pacific trading strategies group, said investors were increasingly concerned about a credit crunch in Asia’s corporate sector. “The equity sell-off is morphing into something much more serious. We now have three or four crises happening at the same time.” 

Moves such as the Federal Reserve’s one-percentage-point rate cut are “welcome, but it’s not enough”, he said.

On Monday the BoJ said that it would buy as much as ¥12tn per year of exchange traded funds to help stabilise markets. 

“You have got some buying in here based on the view, however unfounded, that the BoJ is going to buy big to protect the 1,200 line on the Topix [which is currently trading around 1,240]. I think the market is going to test a lot of these theories in coming days,” said one broker at a large domestic house. 

The Japanese yen, a haven during times of market uncertainty, weakened 1 per cent to ¥107 per US dollar. The 10-year US Treasury yield rose 0.09 percentage points to 0.816 per cent. Yields rise as bond prices fall.

Sterling fell 1.5 per cent to below $1.21, extending a slide that has seen it fall by more than 10 cents over the past week.

Deutsche Bank analyst Oliver Harvey said that the currency is highly sensitive to souring mood in markets, which means that “sterling underperformance is likely to continue as long as market conditions remain stressed.”

Brent crude, the international oil benchmark, was trading at about $30 a barrel having dipped below that mark overnight for the first time in four years.

Still, analysts warned that the worst was yet to come for the global economy. “Recession for many economies is unfortunately likely,” said Richard Yetsenga, chief economist at ANZ.

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