By Lorcan Roche Kelly
The rout in global stocks that saw U.S. indexes close around 10% lower yesterday is showing some signs of pausing, if not reversing, this morning. A very volatile session in Asia saw huge swings in stock prices, with Australia’s benchmark gauge moving from losses of as much as 8.1% before closing 4.4% higher. In Europe, the Stoxx 600 Index opened with a gain of almost 4% before giving back some of that to trade up 3% by 5:40 a.m. Eastern Time. Regulators in Spain and Italy banned short selling of certain stocks. There have also been big swings in S&P 500 futures overnight, but they are currently firmly in the green. U.S. bond yields jumped, with the 10-year Treasury yield at 0.888% while gold also recovered some ground after yesterday’s plunge.
Central bank reaction
The jury may still be out on Christine Lagarde’s performance at the European Central Bank yesterday, with the policy moves made overshadowed by her comment that the bank is “not here to close spreads” which sent panic though Italian bond markets. That misfire aside, there was a lot for markets in the package announced. By size, however, the Federal Reserve won the day with a liquidity package which could extend to more than $5 trillion dollars as it announced a series of one and three-month operations. The moves continued this morning, with Norway’s central bank cutting rates by 50 basis points, the Bank of Japan offering to buy more bonds and the People’s Bank of China cutting the required reserve ratio for certain banks.
A day of negotiations between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin seems to have led to a breakthrough for an agreement on a bipartisan plan from Congress to help mitigate the effects of the coronavirus outbreak. Pelosi said she hopes to announce a package of measures later today that will include free coronavirus testing, paid sick leave, and enhanced unemployment benefits, according to an email she sent to House Democrats. Senate Majority Leader Mitch McConnell said the Senate will stay in session next week to vote on any legislation that emerges.
The list of countries and regions that are announcing closures in efforts to fight the spread of the virus continues to grow. In Europe, the lockdown is tightening across the continent, with Germany and the U.K. among the few countries that still have their schools open. New York City has declared a state of emergency, baring all gatherings of more than 500 people. The list of sporting events being cancelled is lengthening. A new test for the virus which gives results 10 times faster than current methods, developed by Roche Holding AG, has won emergency approval from U.S. regulators.
The U.S. February import-price index is published at 8.30 a.m. The latest University of Michigan Consumer Sentiment at 10:00 a.m. will be watched closely by investors for any signs of a worsening outlook. The weekly Baker Hughes rig count at 1:00 p.m. may give some view on how U.S. shale is reacting to the plunge in oil prices. There is no time set, but there will also be a lot of interest in whatever package is unveiled in Congress later.