Stimulus hopes, central banks pull global stocks back from abyss in wild trading

Nikkei futures were 10.88 per cent lower in late New York trade.
Nikkei futures were 10.88 per cent lower in late New York trade.PHOTO: AFP

LONDON (REUTERS, BLOOMBERG) - A global stock rout eased on Friday (March 13) as central banks from the United States to Australia pumped liquidity into their financial systems and as hopes grew that US Democrats and Republicans could pass a stimulus package.

European stock markets were slightly higher on hopes governments will step up spending, but only after several sessions of sustained, heavy losses as investors faced the possibility of a global recession that could be prolonged.

Warning signs still flashed, with Italian government bonds tanking again on Friday morning, after suffering their worst day in nine years in the previous session.

"Markets are quite prepared for a period of falling output. The real fear is that you get second-round effects that result in a nastier, longer recession in the global economy," said Investec economist Philip Shaw.

"That is going to be very difficult to escape from given the monetary pedal is very close to the floor in many jurisdictions."

Italy and Spain meanwhile imposed trading curbs, banning short-selling of dozens of stocks, to stem a market rout triggered by the coronavirus outbreak that saw European stock exchanges post their worst-ever losses on Thursday.

The MSCI world equity index, which tracks shares in 49 countries, hit a three-year low in Asian hours and is down 16 per cent this week so far - its worst run since October 2008 when Lehman Brothers' collapse triggered the global crisis.

US stock futures were volatile in early morning trading, after the US benchmarks on Thursday suffered their worst session since the “Black Monday” market crash in 1987.

As of 6:25am in New York time, Dow futures implied an opening gain of more than 700 points. S&P 500 futures and Nasdaq-100 futures also turned around, pointing to solid opening gains. Earlier in after-hours trading, Dow futures had indicated an opening loss of 700 points.

MSCI's main European Index was up 2.7 per cent at the open, after having fallen more than 20 per cent over the past week.

Earlier in Asia, some of the markets' deepest losses were recovered by the end of a session, in which tight liquidity exaggerated moves.

Japan’s Nikkei fell 10 per cent before paring the drop to close 6 per cent lower. Australia’s S&P/ASX200 had its wildest trading day on record, falling past 8 per cent before surging in the last minutes of trade to settle 4.4 per cent higher after the close.

Thailand’s stock market, which looked headed for another meltdown after plunging again by more than 10.6 per cent, erased all its losses to trade up 3.1 per cent.

Singapore’s Straits Times Index pared losses of as much as 6.3 per cent in the morning to close down 44.64 points or 1.7 per cent to 2,634.00.

Other Asian markets also clawed back losses. Japan’s Nikkei closed down 6.1 per cent after diving as much as 10 per cent. South Korea’s Kospi index more than halved its loss to 3.4 per cent from 7.6 per cent earlier

Hong Kong’s Hang Seng index eased losses to close down 1.1 per cent while the Shanghai Composite Index was down 1.2 per cent.

It was not clear if the late market moves signalled a recovery in the dire sentiment that has wiped some US$14 trillion from world stocks in a month and had Asian markets in freefall at the open.

 
 
 
 

Gold and oil had steadied, but the bond market still bore the scars of the morning’s widespread plunge after the Dow Jones posted its worst drop since the 1987 Black Monday crash.

In the somewhat calmer currency markets, the dollar held its ground as investors nervous about systemic risks drove demand for the world’s reserve currency.

Majors stabilised after furious dollar buying overnight, with the euro finding footing around US$1.1200 and the Aussie recovering to US$0.6300.

Emerging market currencies were punished: the won and baht dropped as far 1 per cent and the rupiah 2 per cent.

FALLING KNIVES

The earlier plunge, as the coronavirus pandemic spreads, gathered pace after US President Donald Trump spooked investors with a move to restrict travel from Europe, and after the European Central Bank disappointed markets by holding back on rate cuts.

In a televised address late on Wednesday, Trump imposed restrictions on travel from Europe to the United States, shocking investors and travellers.

Traders were disappointed after hoping to see broader measures to fight the spread of the virus and blunt its expected blow to economic growth.

“Government bureaucracy simply has not kept pace with the nature of the outbreak and market expectations,” said Tai Hui, Chief Asia Market Strategist, J.P. Morgan Asset Management.

“We need to see the number of new infections stabilise...we also need to see fiscal and monetary policy support implementation,” he said.

“Hence, we are not looking at a specific time or valuation to advise investors to add back equities.”

In commodities, Brent crude rose 1.9 per cent to US$33.84 a barrel after falling more than 7 per cent on Thursday. US crude gained 2.4 per cent to US$32.26 per barrel.