Global stock markets bounce back on US stimulus hopes

European and US stocks and oil prices recovered on Friday on US stimulus hopes, after Asian equities experienced wild swings, with traders closing out a week of carnage for world markets as the coronavirus pandemic fuels fears of a global recession.

The Dow shot 5.8 per cent higher at the opening bell, having dived 10 per cent Thursday, its worst session since 1987. In Europe, London surged 7.3 per cent, Frankfurt rallied 6.9 per cent, Paris soared 8.0 per cent, Milan won a massive 15.2 per cent and Madrid recovered 9.0 per cent.

The turn in sentiment was triggered by several reasons, according to market analyst Patrick J. O’Hare. “The scope of yesterday’s selling viewed by some as the type of panicky selling that tends to be answered with a snapback rally,” he said.

The Paris CAC 40 dived more than 12 per cent Thursday to record its biggest one-day loss since the index was created at the end of 1987. London’s FTSE 100 and the Frankfurt DAX 30 indices meanwhile had their biggest one-day drops since the late 1980s, with losses of around 10-12 per cent.

O’Hare said that hopes have also risen for a better US fiscal response on reports that the White House and Congress are close to a deal.

Berlin also unveiled a 550-billion-euro fiscal package and promised “unlimited” credit to companies hit by the coronavirus pandemic.

And central banks have pumped money into the finacial system to ensure that credit keeps flowing.

Despite Friday’s turnaround, Europe’s main stock markets are still down considerably, with London 13 per cent lower.

Asian markets ended the day mostly lower.

Tokyo, which fell as much as 10 per cent at one point Friday, ended down 6.1 per cent, while Hong Kong shed 1.1-percent lower having plunged around seven per cent earlier in the session. But Sydney won 4.4 per cent.

The volatility gripping markets has wiped trillions of dollars off the globe’s combined company valuations in just a few weeks.

“Despite continued uncertainty over the coronavirus spread, some market players with more optimistic outlooks will see current levels as good buying opportunities for medium and long term plays,” said Nick Twidale, at IC Markets.

Still, trading floors remain nervous places following a virtual implosion worldwide.

“In mere weeks, the market has shifted gears from a transitory health scare to a full-blown global recession,” said AxiCorp market strategist Stephen Innes.

“Global supply chains are no longer just ‘disrupted’ but are now in the process of shutting down completely,” he added.

Oil prices, which have also been ravaged this week, were up more than four per cent on Friday.

Markets have been shaken by an oil price war between Saudi Arabia and Russia, compounded by fears that travel restrictions will further dampen energy demand.

The price of Brent crude is now down by nearly 50 per cent from the start of the year and by a third from the start of the month.

On currency markets Friday, the dollar hit a record-high against the Indian rupee. The greenback fought back also against the yen despite the Japanese unit’s haven position.

“Most worryingly, US bond yields rose... when really the situation was ripe for a mass stampede to the US Treasury market driving down yields,” said Jeffrey Halley, senior market analyst at OANDA.

Gold gained 1% on Friday but was still set for its worst week in more than three years after this week’s wider market sell-off forced investors to sell bullion to cover margin calls.

Palladium prices rose by more than 11% during the trading session, after losing nearly 28% in the previous session, but they were still on track to record their biggest-ever weekly fall amid the wider market turmoil.

Spot gold, which dropped by as much as 4.5% on Thursday, was up 0.9% to $1,590.96 per ounce by 1224 GMT on Friday. For the week, it was down 5.2%, the biggest such fall since November 2016. US gold futures were down 0.3% to $1,585.70.

“We had some liquidation in gold... some might be surprised that gold was down and say it’s not a safe haven asset any more, but in this context, it helps generating liquidity at any time you need it,” said UBS commodities analyst Giovanni Staunovo.

“Some are using the opportunity to buy (gold) at a lower level (now). Also, there’s some stabilisation in the market and that’s helping as well.” In a move to stem a market meltdown, the Federal Reserve on Thursday offered $1.5 trillion in short-term loans, signalling more aggressive action to stimulate the economy.

European stocks bounced back from their worst day ever, as signs of a US stimulus package helped to soothe fears about an economic shock from the contagion.

“We expect prices to remain supported by risk-off sentiment in the coming months as uncertainty surrounding global growth persists with the COVID-19 pandemic now spreading throughout the world,” Fitch Solutions said in a note.

An oil price war will also support gold, Fitch added. Palladium was up 5.7% to $1,936.03 per ounce, but was headed for a weekly decline of more than 24%.

Agencies