LONDON (Reuters) – Oil and equity markets rolled solid on Tuesday after the previous day’s slump, with signs of coordinated action by major world economies to cushion the economic impact of the coronavirus that helps drive investors out panic.
The Brent has gone back a full 10% in the hope that an agreement on the cut of the offer could be saved while most of the yields of the government bonds of reference were below the historical minimums, since the hopes of stimulus in the face to the epidemic they increased risk appetite.
The main Wall Street markets lost little time in recovering at least 2% of the 7% they had given up on Monday, one of their worst days ever recorded. [.N]
The oil and gas and mining sectors were leading the charge for Europe as oil recovered part of Monday’s 25% drop following what appeared to have been the complete breakdown of a crucial global oil pact between OPEC and Russia. [O/R]
Returns on the 10-year US Treasury debt of reference have more than doubled to 0.70% and those on the German Bund have risen by about 20 basis points at some point while investors have given up some safe haven positions, although they were beginning to shrink again. [GVD/EUR]
Supporting the mood was a commitment by US President Donald Trump on Monday to take “important” measures to protect the economy and float the idea of wage tax cuts with congressional Republicans.
Japan said it would spend an additional 430.8 billion yen ($ 4.1 billion) to alleviate the effects of the coronavirus epidemic and the deputy minister of the Italian economy announced that mortgage payments would be suspended as the country would have dealt with the second highest number of cases outside China.
Some of the major global investment banks, including JP Morgan, Citi and Barclays, now expect the Federal Reserve to cut US interest rates to zero in the coming months as part of a global mass move to provide some ballast. and liquidity to the financial system.
“To date, we believe that the markets have gone from being too complacent to overly pessimistic,” the main investment managers of the largest European asset manager Amundi wrote to clients.
“Our central case, however, is a temporary setback, albeit more prolonged than we expected a month ago, followed by a recovery,” they added.
Oil suffered its most marked drop since the 1991 Gulf War and global equities plunged on Monday after Saudi Arabia launched a crude price war with Russia, still making investors worried about the spread of coronavirus.
The market fight on Tuesday had started to gain ground in Asia. The Japanese Nikkei ended the day up 0.85% after hitting its lowest level since April 2017. [.T]
The Australian index closed 3.1% higher as some hunted for deals in smaller stocks.
The Chinese benchmark Shanghai Composite Index posted a 2.1% rise when new cases of domestic coronavirus collapsed and President Xi Jinping’s visit to the epicenter of the epidemic raised sentiment.
The news continued to be negative elsewhere, however, with Italy ordering its citizens not to move to places other than work and emergencies and banning all public meetings.
“Although the uncertainty is very high, we now expect that such restrictions will be implemented across Europe in the coming weeks,” warned JPMorgan economists.
“We now expect a contraction in global growth in the first half of 2020 and a powerful global disinflationary wave that will take hold,” they added. “We expect the Fed to cut to zero before or before the March 18 meeting.”
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The oil demonstration had the most horses. About 10% of Monday’s massive losses have been made up, offering hope that markets have found a plan despite the still fragile sentiment.
Russian oil minister Alexander Novak said he did not rule out joint measures with OPEC to stabilize the market.
He added that the next OPEC + meeting was scheduled for May-June, although Saudi Arabia’s energy minister told Reuters that there would be no need if there was no agreement on how to deal with the impact of the coronavirus on the market.
“I can’t see the wisdom of holding meetings in May-June that would only demonstrate our failure to participate in what we should have done in a crisis like this and take the necessary steps,” said Prince Abdulaziz bin Salman.
Benchmarks Brent crude futures rebounded from $ 2.80 to just $ 37 a barrel, although it was still about half the level at which the year started. [O/R]
Gold prices fell 1%, retreating from the jump in the last session above the key level of $ 1,700, while the demand for safe haven declined somewhat amid speculation about global stimulus measures. [GOL/]
“In times of turbulence, nothing is more important in restoring confidence than the government appears calm and in controlling the (however) tenuous situation that control can be,” said Jeffrey Halley, senior market analyst at the OANDA broker, in a note.
(Chart: dipping oil, coronavirus fuels credit concerns – here)
Such was the conflagration of market wealth that analysts assumed that politicians would have to react aggressively to prevent an economic crisis.
The U.S. Fed drastically increased the size of its fund injections to markets on Monday to avoid stress.
Having produced an emergency rate cut just last week, investors are setting an easing price of at least 75 basis points at the next Fed meeting on March 18, while a near zero cut was now seen as likely since April. <0#FF:>
The British finance minister is expected to hand over his annual budget on Wednesday and there is much talk of coordinated stimulus with the Bank of England.
The European Central Bank will meet on Thursday and will be under strong pressure to act, even though euro area rates are already deeply negative.
“Italy’s decision to quarantine the whole country will affect 15% of Europe’s GDP, putting the ECB at the forefront of efforts to mitigate the growing economic deterioration,” said Brian Martin, a senior international economist from the ANZ. .
The bonds had charged central banks a price essentially in a global recession of unknown length.
US 10-year Treasury yields fell by just 0.318% on Monday – a level unthinkable just a week ago – but returned to last at 0.622% on Tuesday amid chatter on the stimulus.
This in turn helped the dollar recover some of its recent heavy losses to reach 104.20 yen, moving away from Monday’s three-year depression around 101.17.
The euro returned to $ 1.1375, after rising 1.4% on Monday to its 13-month high at $ 1.1492. [/FRX]
(Graph: US dollar and US 10-year real yields – here)
Additional reports from Wayne Cole in Sydney; Editing by Catherine Evans