LONDON (Reuters) – Financial markets recovered on Tuesday. Equities and oil rose about 4% in Europe, while the safe haven dollar fell as unprecedented global economic efforts accelerated.
While the Fed’s offer to buy unlimited bonds should not alleviate the devastating effects of the corona virus alone, investors hoped that using other government bailouts would help avert global depression.
The Fed’s actions hadn’t fueled Wall Street on Monday for long, with 2-3% losses on key indices, but sentiment improved on Tuesday as other governments and central banks stepped in.
The Wall Street S&P 500, Dow Jones and Nasdaq indices were expected to grow 4%, major European stock exchanges rose by similar amounts, and oil, gold and copper were all up 3% to 5%.
“Today there is a strong rebound in the move to get the Fed to launch this massive weapon,” said Francois Savary, CIO of asset manager Prime Partners, adding that the Fed must prioritize seizing financial markets seizures.
“Ultimately, the main problem is that we have to deal with a credit market that is completely closed. First, they had to stop this rise in bond yields … second, they had to make sure that the loan had a liquidity return, then they were stocks – in that order. ”
In addition to buying unlimited assets, the Fed will expand its mandate to include corporate and local government bonds and will hold back a number of other measures that analysts estimate will provide more than $ 4 trillion in loans to non-financial corporations.
There was also evidence of Congress progress on a $ 2 trillion US economic deal that Treasury Secretary Steven Mnuchin hoped was “very tight.”
Other countries present their own measures. South Korea’s devastated market grew 8.6% after the government doubled a proposed economic bailout to 100 trillion won ($ 80 billion).
In China, mainland stocks posted the largest increase in three weeks, climbing almost 3%, while the Japanese Nikkei gained 7%, the largest daily gain since February 2016.
However, investors remained cautious as global coronavirus infections exceeded 350,000 and China saw an increase in new infections from abroad.
Japan said it would postpone the Olympics, General Motors was the last to give up its outlook for the year, while Ford was the youngest corporate giant whose credit rating dropped to the brink of “junk” on Monday.
“Markets continue to recover from the latest political announcements and will slide again when the economic reality of the situation emerges,” said Deutsche Bank strategist Jim Reid.
Business activity data in the eurozone fell to a record low on Tuesday and was by far the largest drop by one month since the 1998 survey began.
However, government and central bank funding helped calm nerves in bond markets, where yields on two-year US government bonds reached their lowest level since 2013. Yields for ten years were 0.8339%, compared to last week’s high of 1.28%.
Germany’s 10-year yield rose 2 basis points a day to -0.36%, compared to a 4 basis point increase before the publication of the Purchasing Managers’ Index (PMI). These were all small moves compared to record lows of -0.90% in early March.
“I think we have reached a kind of equilibrium range in safe havens,” said DZ Bank strategist Rene Albrecht.
“Given the prospect of an economic downturn and a much larger (debt) issue going forward, I think the level at which yields are settling is the place for them.”
(Graphic: Global financial markets since the escalation of the corona virus here)
EVERYTHING ABOUT THE ECONOMY
The impact of the virus on the global economy is evident in a series of downgrades to growth forecasts and pre-measured PMIs in the world’s major economies.
German activity fell to its lowest level since the 2009 crisis, reflecting a decline in record services, while French activity fell to an all-time low. Japan saw the largest decline in services so far.
“Economies around the world are going offline and this is devastating for economic activity. This is leading to the most robust relocation of financial markets in vivid memory,” said George Boubouras, research director at K2 Asset Management in Melbourne.
However, the prospect of massive Fed funding pushed the greenback 0.8% lower than its rivals after three-year highs, falling against the yen and falling 1% against the euro.
Commodity and emerging market currencies benefited, with the Australian dollar rising 2% to $ 0.59315 and far from the 17-year lows.
There was also less market volatility. A measure of expected euro-dollar fluctuations fell from over 14% on Monday to below 12%, and a measure of volatility in US stocks fell to a week-long low of around 55 points.
(Graphic: volatility is here again on Wall Street png)
(Graphic: China’s coronavirus cases JPG, here)
Reporting by Sujata Rao; Additional reporting by Karin Strohecker and Yoruk Bahceli in London, Wayne Cole in Syndey and Scott Murdoch in Hong Kong; Edited by Alex Richardson and Edmund Blaair