Stocks, oil bounce back after dizzying losses
Global stocks and oil prices rebounded Tuesday on hopes of US economic stimulus measures as the coronavirus rages, one day after suffering their biggest one-day losses in more than a decade.
Trading was highly volatile as investors attempted to get a grip on a rapidly evolving news flow, with positive reports of progress in China on the virus clashing with a Saudi decision to increase oil output in an already over-supplied market.
“Markets are surging on hopes of a huge stimulus plan from (US President) Donald Trump, but will it be enough to reverse the selloff?” said analyst Joshua Mahony at trading firm IG.
“Meanwhile, the Italian lockdown raises fears of similar action for other European nations.”
In early afternoon trade, London’s benchmark FTSE 100 index of major blue-chip companies was up 2.7 percent, aided by a rebound in oil prices despite the Saudi announcement.
In the eurozone, Frankfurt’s DAX 30 climbed 2.0 percent and the Paris CAC 40 added 2.1 percent.
In Milan, the FTSE MIB rose 0.5 percent, having plunged more than 11 percent Monday, after the Italian government unveiled more drastic measures to curb the economic impact of the coronavirus outbreak.
Wall Street’s three main indices jumped at the open, with the Dow climbing 3.6 percent.
Gulf stocks also saw a bounce, with markets in Saudi Arabia and Dubai both up more than five percent, Abu Dhabi gaining 4.2 percent, and Kuwait and Qatar also making big advances.
“Europe is off to a more positive start on Tuesday, after stocks suffered their worst losses since the global financial crisis at the start of the week,” said analyst Craig Erlam at traders OANDA.
“On any ordinary day, gains of a couple of percent in indices would be a solid day but given the scale of yesterday’s decline, it could well be nothing more than a dead cat bounce.”
Investors often express scepticism about a recovery that follows a heavy fall in a stock or market by referencing the idea that even a dead cat will bounce if it falls from a great enough height.
Global stock markets had collapsed on what has become known as “Black Monday”, with the Dow on Wall Street plunging more than 2,000 points, triggering an emergency break in trade.
The rush for safe investments also sent yields on US Treasuries to record lows, while the VIX “fear” index is within touching distance of its record high seen during the global financial crisis.
Sentiment was boosted Tuesday by news that Chinese President Xi Jinping had visited Wuhan, the centre of the virus outbreak, lifting hopes that the country is well on track to recovery as new infections fall.
The news came after weeks of quarantines that have rocked the global and local economy.
While the outbreak appears to be slowing in China, investors are watching nervously as Europe and the United States try to contain its spread and economic impact.
Italy is now the worst-hit country outside China, with more than 9,000 cases and hundreds of deaths. On Monday, Prime Minister Giuseppe Conte said he was extending restrictions on travel and public gatherings initially imposed on the north to the entire country.
Speculation is also mounting that the Federal Reserve will cut interest rates again, having already slashed them last week.
Trump said Monday his administration would be meeting lawmakers to discuss economic relief measures to mitigate the impact of the disease as it spreads through the United States.
The spread of COVID-19 is putting a huge strain on economies and stoking concerns of a worldwide recession.
Oil prices jumped more than 7 percent Tuesday after having plunged by a third the previous day, in the biggest price swing since the 1991 Gulf War.
The plunge in oil prices was compounded by a budding oil price war between Saudi Arabia and Russia.
Saudi Aramco said Tuesday it would boost production, prompting a renewed slide in crude prices before Russia signalled it could resume its cooperation which OPEC which had kept a floor under prices for the past several years.
– Key figures around 1330 GMT –
London – FTSE 100: UP 2.7 percent at 6,125.29 points
Frankfurt – DAX 30: UP 2.0 percent at 10,837.11
Paris – CAC 40: UP 2.1 percent at 4,805.91
Milan – FTSE MIB: UP 0.5 percent at 18,577.79
EURO STOXX 50: UP 2.0 percent at 3,017.63
New York – Dow: UP 3.6 percent at 24.719.91
Tokyo – Nikkei 225: UP 0.9 percent at 19,867.12 (close)
Hong Kong – Hang Seng: UP 1.4 percent at 25,392.51 (close)
Shanghai – Composite: UP 1.8 percent at 2,996.76 (close)
West Texas Intermediate: UP 7.8 percent at $33.57 per barrel
Brent North Sea crude: UP 8.1 percent at $37.14 per barrel
Dollar/yen: UP at 104.39 yen from 102.42 yen at 2200 GMT
Euro/dollar: DOWN at $1.1376 from $1.1448
Pound/dollar: DOWN at $1.3024 from $1.3112
Euro/pound: UP at 87.31 pence from 87.28 pence