NEW YORK/LONDON (Reuters) – Oil and global equity markets recovered on Tuesday after the prior day’s shellacking as the world’s biggest economies moved to cushion the impact of the coronavirus, but stock gains in Europe failed to hold as investors remained skittish.
The price of Brent crude roared back as much as 10% on hopes a supply cut deal could be rescued while most benchmark government bond yields rose from record lows as measures took shape to confront the epidemic’s economic and human toll.
U.S. President Donald Trump said he would ask Congress for a payroll tax cut and other “very major” stimulus moves to ease the economic pain, but details were unclear.
Japan unveiled a second package of measures worth about $4 billion in spending, focusing on support to small and mid-sized firms.
Wall Street jumped more than 3% at the open but pared gains to about 1% in choppy trade. Investors hoped the sell-off on Monday marked the low of a downturn that has pushed the major U.S. indexes close to bear market territory, a decline of 20% from recent peaks.
“Investors are trying put a bottom in here,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.
“It seems like that yesterday was such a collection of so much bad news, it shocked the market down. Today with fresh eyes people are picking out the names they think have dropped the most,” he said.
Comments by Vice President Mike Pence that private U.S. health insurance companies have agreed to cover coronavirus treatment and waive co-payment fees for testing helped U.S. stocks rebound after briefly turning lower.
MSCI’s gauge of stocks across the globe gained 0.80% but the pan-European STOXX 600 index lost 1.14%, solidly in bear territory.
Major European bourses declined after initial gains and remained in bear territory. The FTSE 100 in London almost eked out a gain but closed down 0.1% as oil companies rebounded following a crash in oil prices as Saudi Arabia and Russia engaged in a price war.
Oil heavyweights BP Plc and Royal Dutch Shell Plc gained 3.4% and 3.7%, respectively, after closing Monday with their worst session on record.
“Traders are a bit nervy, the only positive news we’ve been getting out is probably rate cuts or tax cuts,” Michael Baker, an analyst at ETX Capital in London.
“We need news in terms of the actual control of the virus, which we don’t seem to be having right now,” he said.
Yields on benchmark U.S. 10-year Treasury debt more than doubled to 0.70% 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.
Many strategists and economists expect the Federal Reserve to cut U.S. interest rates to zero as part of a global move to provide strength and liquidity to the financial system.
The dollar rallied after huge losses against the safe-haven Japanese yen and Swiss franc, but analysts said it was too early to predict a floor. The greenback plunged on Monday after the Saudi-Russia price war triggered the biggest daily rout in oil prices since the 1991 Gulf War.
Stocks in Asia rebounded, with Japan’s Nikkei closing up 0.85% after earlier touching its lowest level since April 2017.
China’s benchmark Shanghai Composite Index traded 2.1% higher as new domestic coronavirus cases tumbled and President Xi Jinping’s visit to the epicenter of the epidemic lifted sentiment.
The oil rally had the most horsepower. About half of its massive losses from Monday were clawed back, offering hope that markets had found a floor despite still-fragile sentiment.
Russian oil minister Alexander Novak said he did not rule out joint measures with the Organization of the Petroleum Exporting Countries to stabilize the market.
Benchmark Brent crude futures bounced by $2.83 to $37.19 a barrel, roughly half the level it started the year.
Gold prices fell 1%, retreating from the last session’s jump above the key $1,700 level, as safe-haven demand waned a little amid speculation about global stimulus measures.
(GRAPHIC: Plunging oil, coronavirus stoke credit concerns – here)
Analysts assumed policymakers would have to respond aggressively to prevent an economic crisis. The Fed on Monday sharply stepped up the size of its fund injections into markets to head off stress.
Having delivered an emergency rate cut only last week, investors are fully pricing an easing of at least 75 basis points at the next Fed meeting on March 18, while a cut to near zero was now seen as likely by April. <0#FF:>
Britain’s finance minister is due to deliver his annual budget on Wednesday and there is talk of coordinated stimulus with the Bank of England.
The European Central Bank meets on Thursday and will be under intense pressure to act, even though euro zone rates are already deeply negative.
The bond market had charged ahead of the central banks to essentially price in a global recession of unknown length.
Yields on 10-year U.S. Treasuries dipped to as little as 0.318% on Monday – a level unthinkable just a week ago – but rose back to 0.6787% on Tuesday amid the stimulus chatter.
(GRAPHIC: The U.S. dollar and 10-Year U.S real yields – here)
Additional reporting by Wayne Cole in Sydney, Ambar Warrick; Editing by Catherine Evans and Richard Chang
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