S&P 500 futures rally over 4%, treasury yields up sharply; Europe’s shares jump 3-4%, Asia ends higher
Oil and equity markets staged solid rebounds on Tuesday after the previous day’s pummelling, with signs of coordinated action by the world’s biggest economies to cushion the economic impact of coronavirus helping pull investors out of panic mode.
Brent roared back as much as 10% on hopes a supply cut deal could be rescued, while most benchmark government bond yields were off record lows as hopes for stimulus in the face of the epidemic boosted risk sentiment. Wall Street main markets wasted little time in recouping at least 2% of the 7% they had slumped on Monday, one of their worst days on record.
The oil and gas and mining sectors were leading the charge for Europe as oil recovered some of Monday’s 25% fall following what had appeared to be the complete breakdown of a crucial global oil pact between OPEC and Russia.
Yields on benchmark U.S. 10-year Treasury debt more than doubled to 0.7% and those on German Bunds jumped around 20 basis points at one point as investors pared some safe-haven holdings, though they were beginning to ease again.
Supporting the mood was a pledge from U.S. President Donald Trump on Monday to take “major” steps to protect the economy and float the idea of a payroll tax cut with congressional Republicans.
Japan said it would spend another 430.8 billion yen ($4.1 billion) to ease the effects of the coronavirus outbreak and Italy’s deputy economy minister announced that mortgage payments would be suspended as the country deals with the second highest number of cases outside China.
Some of the biggest global investment banks, including JP Morgan, Citi and Barclays, now expect the Federal Reserve to cut U.S. interest rates to zero in the coming months as part of a mass global move to provide some ballast and liquidity to the financial system.
“As of today, we believe that markets have gone from being overly complacent to overly pessimistic,” the chief investment officers of Europe’s largest asset manager Amundi wrote in a note to clients.
“Our central case, instead, is one of a temporary setback, although more prolonged compared to what we were expecting a month ago, followed by a recovery,” they added.
Oil suffered its sharpest drop since the 1991 Gulf war and global stocks plunged on Monday after Saudi Arabia launched a crude price war with Russia, further rattling investors already anxious about the spread of coronavirus.
Tuesday’s market fight back had begun to gain traction in Asia. Japan’s Nikkei had ended the day up 0.85%, after earlier touching its lowest level since April 2017.
Australia’s index closed up 3.1% as some went hunting for bargains in beaten down stocks.
China’s benchmark Shanghai Composite Index traded 2.1% higher as new domestic coronavirus cases tumbled and President Xi Jinping’s visit to the epicentre of the epidemic lifted sentiment.
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