Stocks pause before key EU meeting on coronavirus aid
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[April 23, 2020]
By Thyagaraju Adinarayan
LONDON (Reuters) - Caution gripped markets
on Thursday, with stocks falling before a key Eurogroup meeting to
discuss joint stimulus measures, offsetting optimism from a fresh round
of U.S. coronavirus aid and a recovery in oil prices.
The U.S. Congress looked on course to approve nearly $500 billion more
in aid to help small businesses, while European Union leaders make
another attempt at agreeing on a joint recovery fund.
European stocks slipped 0.4% and U.S. stock futures were down 0.3% after
a strong showing on Wednesday.
"EU Council meeting will be closely watched to see how quickly EU policy
makers will move towards area-wide fiscal risk-sharing," said George
Cole, an economist at Goldman Sachs. "We expect the discussions to fall
short of a full commitment to mutualise risks from the COVID-19 shock."
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Adding further pressure were business activity surveys in the euro zone
that showed economies suffered massive blows from the coronavirus
outbreak and measures to contain it.
IHS Markit's Flash Composite Purchasing Managers' Index (PMI) for the
bloc, seen as a good gauge of economic health, sank to 13.5, by far its
lowest reading since the survey began in mid-1998.
Stocks and other risky assets barely acknowledged those numbers, though,
since they were mostly backward-looking data. It was the EU meeting and
the outcome that weighed on markets.
"Frankly, if we saw a full agreement today that would be a surprise, but
progress and something that Italy can sign up to will be the key," Jim
Reid, a strategist with Deutsche Bank, said.
Italian two-year government bond yields fell 5.5 basis points to 1%,
after earlier slipping as much as 12 bps to 0.94%. Ten-year yields were
down by the same amount at 2.05%.
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The German share price index DAX graph is pictured at the stock
exchange in Frankfurt, Germany, April 22, 2020. REUTERS/Staff/File
Photo
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The silver lining in macroeconomic news overnight was the European
Central Bank's decision to let banks post collateral that was
downgraded to junk during the coronavirus outbreak to prevent a
credit squeeze in the euro zone. That pushed down the cost of
insuring exposure to a basket of sub-investment grade European
companies.
Asia was still riding the recovery in crude oil prices. MSCI's
broadest index of Asia Pacific shares outside of Japan rebounded
from two-week lows to be up 0.4% following an overnight lead from
Wall Street.
Brent oil extended gains on Thursday to rise 5% to $21.46 a barrel
on the prospects for further production cuts to reduce the glut in
the oil market. U.S. crude gained 6% to $14.61.
In currencies, the dollar slipped against the currencies of
oil-producing states, giving up earlier gains as the recovery in
crude prices helped to soothe markets.
The dollar fell 1% against the Russian rouble and 0.6% against the
Mexican peso, retreating from a two-week high earlier in the
session.
(Reporting by Thyagaraju Adinarayan in London and Swati Pandey in
Sydney, editing by Larry King)
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