Global stocks steady after plunge on virus, oil crash

BEIJING (AP) – Global stock markets rebounded yesterday from record-setting declines after United States (US) President Donald Trump said he would ask Congress for a tax cut and other measures to ease the pain of the spreading coronavirus outbreak.

Oil prices also recovered some of their losses in Monday’s record-setting plunge.

London opened 1.8 per cent higher and Frankfurt advanced one per cent. China’s main stock index rose 1.8 per cent and Tokyo closed up 0.9 per cent.

On Wall Street, which suffered its biggest one-day drop since the 2008 global crisis on Monday, futures for the benchmark S&P 500 index picked up 3.9 per cent and the contract for the Dow Jones Industrial Average rose 3.8 per cent.

Monday’s global selloff reflected alarm over economic damage from the coronavirus that emerged in China in December. Anti-disease controls that shut down Chinese factories are spreading as the US and European countries close schools, cancel public events and impose travel controls.

Anxiety mounted after Italy, the hardest-hit place in Europe, said travel controls imposed earlier on its north would be extended nationwide. Ireland canceled St Patrick’s Day parades and Israel ordered visitors quarantined ahead of Passover and Easter, one of the busiest travel periods of the year.

A man wearing a protective face mask walks by statues of bulls on display outside a bank in Beijing. PHOTO: AP

The mounting losses and a flight by investors into the safe haven of bonds have fuelled warnings the global economy, which already was showing signs of cooling, might be headed into a recession.

The drop in US stock prices was so sharp that it triggered Wall Street’s first trading halt in more than two decades. But Trump’s comment that he will seek relief for workers as ripple effects of the outbreak spread gave some investors an excuse to resume buying.

“This is not like the financial crisis where we don’t know the end is in sight,” said Treasury Secretary Steven Mnuchin. “This is about providing proper tools and liquidity to get through the next few months.”

In early trading, London’s FTSE 100 rose to 6,074.85 and Frankfurt’s DAX advanced to 10,724.35. The CAC 40 in France gained 1.4 per cent to 4,776.31.

The Shanghai Composite Index rose to 2,996.76 and the Nikkei 225 in Tokyo advanced to 19,867.12. Hong Kong’s Hang Seng climbed 1.4 per cent to 25,392.51.

The Kospi in Seoul added 0.4 per cent to 1,962.93 and Sydney’s S&P-ASX 200 rose to 5,939.60.

Singapore, Bangkok and Jakarta advanced by more than two per cent, while New Zealand declined.

Benchmark US crude gained 3.2 per cent, or USD1.00 to USD32.13 per barrel in electronic trading on the New York Mercantile Exchange. It lost 25 per cent on Monday to USD31.13 per barrel.

Brent crude, the standard for international oil prices, gained 5.1 per cent, or USD1.68 to USD36.04 per barrel in London.

But the spat over oil output and pricing was overshadowed by the virus outbreak. While the crisis is easing in China, where the virus was first detected, fast-growing clusters have turned up in South Korea, Japan, Iran and Italy, and the caseload is growing in the US.

For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia. The vast majority of people recover from the virus, as has already happened with about three-quarters of those infected in China.

Oil prices plunged 25 per cent on Monday after Russia refused to roll back production in response to virus-depressed demand. Saudi Arabia signalled it will ramp up its own output.

Stock markets usually welcome lower energy costs for consumers and businesses. But the decline cuts into revenue for producers, including the US. And the abrupt drop, coming amid virus fears, rattled investors.

On Wall Street, the S&P 500 index fell 7.6 per cent in biggest one-day drop since December 1, 2008. The Dow lost 7.8 per cent and the Nasdaq composite gave up 7.3 per cent.

The S&P dropped 7.4 per cent in the first few minutes of trading, triggering an automatic 15-minute market-wide trading halt. That has happened only once before, in 1997.

The S&P 500 has fallen 18.9 per cent from its February 19 record and has lost USD5.3 trillion in value. US stocks are close to entering a bear market, defined as a drop of 20 per cent from their peak.

European stock indexes already are in a bear market after recording their biggest declines since the 2008 crisis.

Central banks in the US, China and other countries have cut interest rates to try to shore up economic activity. But economists warn that while rate cuts might help to buoy consumer demand, they cannot reopen factories that are closed due to quarantines or lack of workers and raw materials.

“Even coordinated policy responses are not a tried and tested panacea and by no means guarantee the ability to durably pull markets back from the brink of bear territory,” Vishnu Varathan of Mizuho Bank said in a report.

The yield on US Treasury bonds edged up to 0.67 per cent after falling as low as 0.5 per cent as investors shifted money into safe haven assets. It had never been below one per cent until last week.

The yield, or the difference between the market price and what investors will receive if they hold the bond to maturity, is seen as a measure of economic confidence. Investors shift money into bonds if they expect economic growth and stock prices to weaken. That pushes up the bond’s market price and narrows the yield.

In currency trading, the dollar rose to JPY104.28 from JPY102.37 late Monday. The euro slipped to USD1.1369 from USD1.1439.