Stock markets extend gains as policymakers pull out all the stops

By Chris Prentice and Tom Wilson WASHINGTON/LONDON (Reuters) - European and U.S.

Reuters March 20, 2020 02:05:21 IST
Stock markets extend gains as policymakers pull out all the stops

Stock markets extend gains as policymakers pull out all the stops

By Chris Prentice and Tom Wilson

WASHINGTON/LONDON (Reuters) - European and U.S. stocks extended gains on Thursday after initially dropping, in a sign of tentatively more stable markets, as the Federal Reserve and other central banks across the world moved to stem a coronavirus -induced financial rout.

The most recent move by the Fed to boost liquidity in tight markets, especially trading for Treasury securities, helped calm jittery investors and lift the dollar to a fresh three-year high against a basket of major currencies <=USD>.

The Fed increased the access to dollars for central banks in nine countries so contracts in key commodities and other goods that are made in the U.S. currency can be done, helping to loosen particularly tight bond markets.

The U.S. central bank said the swaps, in which the Fed accepts other currencies as collateral in exchange for dollars, will be in place for at least the next six months.

The swaps will allow the central banks of Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand to tap a combined total of up to $450 billion to help ensure the world's dollar-dependent financial system functions.

The collateral to purchase crude oil, for example, is U.S. Treasury debt and to buy those securities requires dollars, said Michael Skordeles, U.S. macro strategist at Truist/Suntrust Advisory Services in Atlanta.

"All these things kind of happening at once causes a lot of dominoes to fall, and as the dominoes fall, it creates more demand, pushing people towards the dollar," Skordeles said.

"This (the dollar swap lines) is going to help, but it's not a silver bullet," he said. "Because there's a flow of capital into dollar-denominated assets, in particular U.S. Treasuries, it's starving these countries of liquidity and making the dollar appreciate."

U.S. oil prices surged about 25%, recouping some losses from a sell-off that drove prices to near 20-year lows over the past month, but analysts saw the rebound as a brief reprieve from the economic tsunami the virus is expected to cause.

On Wall Street, the benchmark S&P 500 <.SPX> climbed 52.23 points, or 2.18%, to 2,450.33 and the Nasdaq Composite <.IXIC> surged 286.48 points, or 4.1%, to 7,276.32.

The Dow Jones Industrial Average <.DJI> rose 254.89 points, or 1.28%, to 20,153.81. As of the prior session, nearly all of the Dow's gains since President Donald Trump's 2017 inauguration had been wiped out as the widening repercussions of the coronavirus pandemic threatened to cripple economic activity.

The meltdown had pushed Wall Street's three main indexes down about 30% as of Wednesday from their record closing highs last month.

The pan-European STOXX 600 index <.STOXX> rose 2.91% and MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.67%.

Graphic: Asian stock markets

Graphic: World FX rates in 2020


Global bond prices gyrated with desperate investors dumping government bonds and hoarding cash in markets gripped by pandemic fears that have forced central banks to step up support for debt.

U.S. Treasury yields largely fell in volatile trading, a sign the Fed's efforts were working.[US/]

The dollar continued its rally as investors rushed to secure liquidity. The British pound was down in choppy trade and slipped past the previous day's trough to the lowest since 1985.

Bond markets stabilized somewhat after the European Central Bank pledged late Wednesday to buy 750 billion euros ($820 billion) in sovereign debt through 2020. That brought the ECB's planned purchases for this year to 1.1 trillion euro.

Government bond yields in Italy and across the euro zone dropped after the ECB's emergency measures, though European stocks fell back into negative territory after arresting their rout in early trading.

Expected price swings for some of the world's biggest currencies rocketed to multi-year highs as the demand for dollars forced traders to dump currencies across the board.

For the British pound versus the dollar, expected volatility gauges leapt to 24.4%, their highest level since before the 2016 Brexit vote.

"One unresolved and really critical issue is what's going on in volatility," said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. "I think that volatility needs to stabilise before the broader market can heal."

Italy, which has seen its borrowing costs jump in recent days, led the drop in yields after the ECB move.

The gap over the safer German Bund's yields tightened.

The U.S. Fed earlier promised a liquidity facility for money market mutual funds, and Australia's central bank slashed interest rates to a record low of 0.25%.

Traders reported huge strains in bond markets, however, as distressed funds sold any liquid asset to cover equity losses and investor redemptions.

Benchmark 10-year sovereign bond yields in New Zealand, Malaysia, Korea, Singapore and Thailand surged as prices fell, and U.S. 10 year Treasuries rose 10 basis points through the session.

The coronavirus pandemic has killed almost 9,000 people globally, infected more than 218,000 and prompted widespread emergency lockdowns.

Gold dropped 1.1% and like other assets was buffeted by volatility. Copper, a gauge of global economic health, hit its down-limit in Shanghai, and London futures traded in London fell to their lowest since 2016.[MET/L]

For Reuters Live Markets blog on European and UK stock markets, please click on: [LIVE/]

(Reporting by Tom Wilson in London and Chris Prentice in Washington; Additional reporting by Herb Lash in New York, Tom Westbrook in Singapore and Sujata Rao in London; Editing by Nick Zieminski and Bernadette Baum)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:


also read

Greek police clash with protesters in rally against mandatory vaccinations

Greek police clash with protesters in rally against mandatory vaccinations

ATHENS (Reuters) - Greek police used teargas and water cannon to disperse people who had gathered in central Athens on Saturday to protest against mandatory COVID-19 vaccinations. More than 4,000 people rallied outside the Greek parliament for a third time this month to oppose mandatory inoculations for some workers, such as healthcare and nursing staff.

Two Turkish soldiers killed in attack in northern Syria

Two Turkish soldiers killed in attack in northern Syria

ISTANBUL (Reuters) - Two Turkish soldiers were killed and two were wounded in an attack on their armoured vehicle in northern Syria, and Turkish forces immediately launched retaliatory fire, Turkey's defence ministry said on Saturday. "Our punitive fire against terrorist positions is continuing," the statement on Twitter on said. It did not specify where the attack occurred, but media reports said it was in the al-Bab area.

Brazilians take to streets again to demand Bolsonaro's impeachment

Brazilians take to streets again to demand Bolsonaro's impeachment

By Marcelo Rochabrun SAO PAULO (Reuters) - Protesters took to the streets in several Brazilian cities on Saturday to demand the impeachment of far-right President Jair Bolsonaro, whose popularity has fallen in recent weeks amid corruption scandals against the backdrop of the pandemic. This week, news broke that Brazil's defense ministry told congressional leadership that next year's elections would not take place without amending the country's electronic voting system to include a paper trail of each vote. Bolsonaro has suggested several times without evidence that the current system is prone to fraud, allegations that Brazil's government has denied