Stock markets shed big gains as investors weigh stimulus plans
Rally loses momentum amid persistent concern over viral outbreak
Ahistoric rebound in global financial markets lost momentum on Wednesday, showing investors remain nervous even despite the farreaching efforts of governments and central banks to mitigate the economic impact of the Covid-19 pandemic.
Bourses across Europe had kicked off the day on a high note after the US Congress struck a deal to provide $2tn in relief to taxpayers and businesses struggling with the impact of the virus, but the rally fizzled before lunch time.
In recent dealings, the continent-wide Stoxx 600 was flat on the day, having jumped close to 5 per cent earlier. The choppy price moves come after the index on Tuesday posted its third-best day on record. Gains in London’s FTSE 100 also petered out to a large extent, leaving the barometer up less than 1 per cent.
Markets, rocked in recent weeks by the Covid-19 outbreak, have been bolstered by unprecedented stimulus measures from central banks and governments around the world. Wall Street enjoyed its biggest rally in over a decade on Tuesday. However, investors remained deeply sceptical over whether markets had really hit bottom.
Tai Hui, chief Asia market strategist at Jpmorgan Asset Management, said the plan agreed in the US Congress early on Wednesday was a “welcome sign” but that “the challenge ahead remains considerable”.
This week’s equity rebound could be a “sucker rally” in light of the challenges still facing global markets, said Robert Carnell, head of Asia-pacific research at ING. The rapid increase in coronavirus cases worldwide was “eye-watering”, he said.
The global Covid-19 case count has reached 424,000 people with 18,900 dying from the viral infection. India late on Tuesday moved to lock down the entire country of 1.37bn people — one of the world’s biggest emerging market economies. The situation also continued to worsen in the US, and in New York particularly.
S&P 500 were down 1.4 per cent, surrendering earlier gains and suggesting Wall Street may open lower after the best day since 2008.
Dealers in Tokyo earlier warned that the two-day surge in Japanese stocks was disconnected from economic fundamentals. “We are seeing markets dominated by fast money. Some long-only clients are coming back to scoop up the names they liked all along, but mostly this is the momentum traders dictating the direction of travel again,” said one broker.
In Tokyo, where some brokers suggested markets may have hit a floor last week, the Nikkei 225 average surged 5.8 per cent to reclaim the 19,000 line. The gains for the Topix took it above 1,400 points.
The return to those levels, said traders, would come as a relief to the central bank, which has ploughed more than ¥1tn ($9bn) into the Japanese equity market in March in a bid to support markets.
The Bank of Japan’s now decade-long programme of buying exchange traded funds is controversial. The Nikkei’s recent plunge below 19,000, according to JPMorgan calculations, had taken the central bank’s portfolio into the red and the BOJ potentially into hot water politically.
Haven assets were under mild selling pressure, with the 10-year US Treasury yield edging higher by 0.01 percentage points to 0.83 per cent. Yields rise when bond prices fall.
Oil prices had initially risen on Wednesday but turned directions with stocks. Brent crude was recently lower by 3.8 per cent at $26.12 a barrel.