Markets lifted as central banks, governments pour in cash
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[March 20, 2020]
By Ritvik Carvalho
LONDON (Reuters) - Stock markets rebounded
from some of their recent huge losses on Friday, pulling further away
from three-year lows as central banks and governments pledged masses of
cash to reduce the economic impact of the coronavirus pandemic.
Shares soared at the start of trading in Europe, with the pan-European
STOXX 600 index jumping nearly 5%.
Britain's FTSE rose 4%, Germany's DAX gained 6%, and France's CAC 40
gained 5.86%. Spanish stocks were up 3.8% and Italian stocks gained 3%.
MSCI's All-Country World Index, which tracks stocks across 49 countries,
was up 1.5 %.
But in an indication of the deep damage inflicted on global equities
from the pandemic so far, the index remains set to finish nearly 9%
lower this week, adding to last week's 11.1% plunge.
U.S. S&P 500 e-mini stock futures also pointed to a brighter end to the
week, adding 3.5%.
As the spread of the coronavirus brought much of the world to a halt,
nations have poured ever-more massive amounts of stimulus into their
economies while central banks have flooded markets with cheap dollars to
ease funding strains.
The U.S. Senate was debating a $1 trillion-plus package that would
include direct financial help for Americans, relief for small businesses
and steps to stabilize the economy.
Sources told Reuters that China was set to unleash trillions of yuan of
fiscal stimulus to revive an economy facing its first contraction in
four decades, though on Friday the country surprised markets by keeping
its lending benchmark unchanged.
"Markets, in our view, will ultimately settle down if three conditions
are met: 1) visibility on the ultimate scale of the coronavirus outbreak
and evidence the infection rate as peaked over the long term; 2)
deployment of credible and coordinated policy packages; and 3)
confidence that financial markets are functioning properly," asset
manager BlackRock said in a note.
It said it was neutral on risk assets and advised investors to take a
long-term perspective as "significant value is being created on riskier
In currency trading, the dollar lost some steam after hitting more-than
three-year highs this week as investors dumped many assets in favor of
the world's reserve currency.
The dollar's surge is a nightmare for the many countries and companies
that have borrowed heavily in the U.S. currency, leading to yet more
selling of emerging market currencies in a negative feedback loop.
"The speed and aggression with which authorities are wheeling out
measures to cushion the economic fallout from the virus and sowing the
seeds for a hopefully rapid recovery, has resonated somewhat in equity
markets," said Ray Attrill, head of FX strategy at NAB.
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A man wearing protective face mask, following an outbreak of the
coronavirus disease (COVID-19), walks in front of a stock quotation
board outside a brokerage in Tokyo, Japan, March 10, 2020. REUTERS/Stoyan
"Yet there is little doubt that funds need to buy dollars to
rebalance hedges in light of the 30% fall in equity markets so far
this month," he added. "The dollar remains the pre-eminent
safe-haven asset during times of extreme market stress."
For now, investors in Asia were merely happy Wall Street had not
plunged again. South Korean shares bounced 7.4%, though that still
left them down more than 11% for the week.
Australia's beleaguered market eked out a 0.70% gain, and futures
for Japan's Nikkei were trading up at 17,710, compared with the cash
close of 16,552.
Aiding sentiment was a rally in oil prices overnight. U.S. crude was
7% higher at $27 a barrel on Friday, up from a low of around $20,
while Brent crude stood at $30.
This was a major relief as the collapse of crude prices had blown a
huge hole in the budgets of many oil producers and forced them to
dump any liquid asset to raise cash, with U.S. Treasuries a
After climbing more than 100 basis points in nine sessions, U.S.
10-year Treasuries steadied around 1.0501%.
At the same time, funds across the world were fleeing to the
liquidity of U.S. dollars, lifting it to peaks not seen since
January 2017 against a basket of its peers.
"Such price action suggests significant market stress, particularly
on the wide range of entities outside the U.S. that have borrowed in
dollars," said Richard Franulovich, head of FX strategy at Westpac.
"It could last until global capital flows and investor risk appetite
normalizes, possibly months away."
The euro rose 0.85% to $1.0781 but was not far off three-year lows,
having shed more than 3% for the week so far - the steepest decline
Sterling continued its wild swings with a blistering 3% rally to
$1.1878, having earlier hit its lowest since 1985 around $1.1404. It
was still down 3% for the week.
The jump in the dollar has made gold more expensive in other
currencies. While it rallied on Friday to $1,503.78 per ounce, it
remains down about 1.6% on the week.
(Reporting by Ritvik Carvalho; additional reporting by Sujata Rao
and Saikat Chatterjee in London; Editing by Hugh Lawson)
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