Stocks rally on new coronavirus support measures
Global stocks and the price of oil rose, while the US dollar’s rampant advance went into reverse, after a flurry of central bank support in response to the coronavirus outbreak sent markets sharply higher.
European markets were on track to record a second consecutive day of gains, although they could not hold on to early gains of more than 5 per cent.
London’s FTSE 100 was up 2 per cent, while the composite Stoxx Europe 600 rose 2.9 per cent. The regional benchmark has recovered more than 10 per cent off its lows this week, but has still lost more than a third of its value since pandemic fears rushed through global markets one month ago.
Asian markets rose overnight, while on Wall Street, futures tied to the S&P 500 gained 2.5 per cent. The US benchmark closed 0.5 per cent higher on Thursday. In a mark of how unusual that has become in recent weeks, that was the first day it has moved less than 1 per cent in 14 sessions.
Global stocks have been unable to hold on to any gains over the past month, and traders warned that any rebound could be temporary until there were signs that the pandemic’s spread was stalling.
“The market is eager for a medical solution,” said Deutsche Bank strategist Jim Reid, who noted that US markets briefly jumped on hopes of a treatment floated by president Trump.
“Markets remain very volatile and the outbreak of Covid-19 in the West is still at an early stage,” said Rodrigo Catril, a senior markets strategist at National Australia Bank in Sydney.
“The full extent of the negative economic consequences from containment measures remains uncertain,” he added.
Central bank interventions have sought to stem the economic hit from the spread of coronavirus, which threatens a large global recession this year. The European Central Bank, Federal Reserve and Bank of England unveiled measures ranging from buying hundreds of billions of euros of bonds, to swap lines and interest rate cuts. Norway’s central bank on Friday slashed its main rate by three-quarters of a percentage point.
The result has been relative market calm, with currencies stabilising after being upended by a surging US dollar as companies and banks hoard dollars.
Sterling gained nearly 2.3 per cent to trade at $1.175, picking up from multi-decade lows touched earlier in the week.
The Australian dollar recovered 2.5 per cent against the greenback, while South Korea’s won gained more than 1 per cent. Overnight, the Fed rolled out dollar swap lines with central banks including the RBA and Bank of Korea.
“While the latest central bank actions might have materially helped, it is still too early to call for a bottom,” said Chris Turner, global head of markets at ING.
“The dollar funding squeeze remains a dominant theme in FX markets, and the global economic outlook remains highly uncertain, with clear downside risks,” he added.
Brent crude oil, the global benchmark, briefly rose above $30 a barrel, pushed higher by new government measures to combat the economic impact of the coronavirus and reports that president Trump could intervene in the Russia-Saudi price war.
“The oil market remains characterised by extreme volatility,” said Carsten Fritsch at Commerzbank. “The current price gains could soon collapse again.”
Policymakers’ interventions also helped to soothe government bond markets on Friday.
The yield on the US 10-year Treasury bond fell 0.12 percentage points to 1 per cent, while the 10-year Australian yield dropped as much as 0.56 percentage points after the Reserve Bank of Australia said it would buy up to A$5bn (US$2.9bn) in government debt. Normally, drops in safe government bond yields — the flip side of rising prices — would be a sign of market anxiety. This week, however, investors have been unnerved by falls in government bond prices, which indicate a scramble for cash among distressed investors.
Share indices in Australia, China and South Korea all gained on Friday. South Korea’s Kospi benchmark was the standout and jumped 7.4 per cent after falling more than 8 per cent on Thursday.