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Global Market Report - 11 March

Lex Hall  |  11 Mar 2020Text size  Decrease  Increase  |  
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Australia

Australian shares are poised to rebound after US markets rallied overnight as hopes of government stimulus calmed investors’ fears of the coronavirus and signs of recession.

The SPI200 futures contract was up 34 points, or 0.57 per cent, at 5999 at 8am Sydney time, pointing to a higher opening on Wednesday.

On a day of wild swings, the US markets closed on a bright note. On Wall Street, the Dow Jones Industrial Average rose 1167.14 points, or 4.89 per cent, to 25,018.16, the S&P 500 gained 4.94 per cent and the Nasdaq Composite added 4.95 per cent.

Oil prices jumped more than 8 per cent overnight, bouncing from the biggest rout in nearly 30 years as the possibility of economic stimulus encouraged buying and US producers slashed spending in a move that could cut output.

The Australian dollar fell sharply overnight, as sentiment on the currency turned negative amid a rebound in the US dollar amid continuing global market fluctuations.

The Australian dollar was buying 65.05 US cents at 8am, down from 65.62 US cents from at the market close on Tuesday.

The currency's year-to-date return is now negative 7.7 per cent.

Asia

Chinese shares closed higher on Tuesday as new coronavirus cases in the mainland tumbled and as President Xi Jinping’s visit to the virus’ epicentre lifted sentiment, while weak data raised hopes for more policy measures to support the economy.

The Shanghai Composite index ended 1.82 per cent higher at 2,996.76 after swinging between losses and gains earlier in the session. Despite the gains, the index remains down more than 2.5 per cent from last week’s highs.

The blue-chip CSI300 index was up 2.14 per cent, with its financial sector sub-index higher by 1.66 per cent, the consumer staples sector up 2.32 per cent, the real estate index up 1.2 per cent and the healthcare sub-index up 0.67 per cent.

Hong Kong shares rebounded on Tuesday from sharp losses in the previous two sessions as investors hoped that coordinated fiscal and monetary support from global policymakers would boost economies hit by the coronavirus and limit financial contagion. At the close of trade, the Hang Seng index was up 352.05 points, or 1.41 per cent, at 25,392.51.

Around the region, MSCI's Asia ex-Japan stock index was firmer by 1.15 per cent, while Japan's Nikkei index closed up 0.85 per cent.

Europe

An early recovery proved short-lived for European shares on Tuesday with no end in sight to the coronavirus outbreak, as a jump in infections across the bloc unsettled investors already reeling from the oil price crash.

The pan-European STOXX 600 closed 1.1 per cent down, slipping further into bear territory after marking its worst day since the 2008 financial crisis on Monday.

A surprise crash in oil prices compounded worries over a recession due to the outbreak, and had pushed oil and gas stocks into their worst drop ever on Monday.

However, with Italy now under lockdown, and Britain and Germany reporting higher cases of infection, investors have little impetus to stay in risk assets with widespread disruptions from the virus appearing to be likely.

“Traders are a bit nervy, the only positive news we’ve been getting out is probably rate cuts or tax cuts - we need news in terms of the actual control of the virus, which we don’t seem to be having right now,” said Michael Baker, analyst at ETX Capital in London.

A surprise jump in Swedish cases of the virus also fed more uncertainty into markets.

Italian stocks shed early gains to close at a more-than three-year low. The government is set to approve measures worth around 10 billion euros ($11.35 billion) to counteract the impact of the virus.

German stocks ended more than 1 per cent lower, as coronavirus cases in Europe's largest economy rose over 1,100.

A Deutsche Bank economist expects the country’s economy to shrink in 2020 due to the impact of the virus.

Among individual movers, Germany’s Commerzbank closed up 3 per cent after it said it was yet to see any impact from the outbreak on its business.

Italian highway operator Atlantia ended at a more-than six-year low amid concerns over a severe fall in traffic due to the outbreak.

German logistics firm Deutsche Post jumped 6 per cent after saying it had started to see volumes in China recover from the impact of the coronavirus outbreak, and announced a bigger than expected annual dividend.

Airline stocks also rose about 0.2 per cent to 4 per cent after the European Union, in a move to give airlines more breathing space amid headwinds from the coronavirus, said it would suspend a rule requiring carriers to run most of their scheduled services or else forfeit landing slots.

Traders are now betting on an interest rate cut by the ECB later this week, although many see the bank having little room to cut, given that rates are already in negative territory.

North America

Wall Street roared back to life on Tuesday, rebounding from the brink of bear market confirmation as bargain-hunting and hopes of government stimulus calmed investors’ fears surrounding the coronavirus and growing signs of imminent recession.

All three major indexes jumped nearly 5 per cent the day after equities markets suffered their biggest one-day losses since the 2008 financial crisis.

Still, the S&P 500 and the Nasdaq ended the session about 15 per cent below the record closing highs reached on 19 February. Sinking beyond the 20 per cent mark would confirm a bear market.

US President Donald Trump said he will take “major steps” to allay market fears by asking Congress for a fiscal stimulus package to include a payroll tax cut, among other measures.

“Coming off yesterday, you’ve got short-term bargain-hunters coupled with potential fiscal stimulus hopes,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

“It may be the biggest benefit is not actually what’s getting done - it’s that there appears to be a plan,” Carlson added. “There does appear to be a willingness to do something, and that’s probably what’s helping the market.”

Market participants largely expect the US Federal Reserve to cut interest rates for the second time this month at the conclusion of next week’s two-day monetary policy meeting.

Outside the US, major world economies took steps to cushion the effects of the fast spreading COVID-19.

Global markets have been rattled in recent weeks by the rapidly spreading coronavirus, which has caused widespread supply chain disruption, hobbled the travel industry and prompted drastic containment measures in Italy and elsewhere.

Market uncertainties surrounding COVID-19 were exacerbated over the weekend as Saudi Arabia and Russia scrapped their supply pact and pledged to increase crude oil production.

But oil prices rebounded from Monday’s largest percentage drop since the 1991 Gulf War, with front-month Brent crude LCOc1 rising 10.0 per cent after Russia indicated it was open to talks with OPEC.

Energy stocks bounced back from their worst decline on record, advancing 5.0 per cent.

The Dow Jones Industrial Average rose 1167.14 points, or 4.89 per cent, to 25,018.16, the S&P 500 gained 135.67 points, or 4.94 per cent, to 2,882.23 and the Nasdaq Composite added 393.58 points, or 4.95 per cent, to 8344.25.

All 11 major sectors of the S&P 500 closed higher, led by tech and rate-sensitive financial shares.

Financials jumped 6.0 per cent after suffering their worst day in more than a decade as US Treasury yields rebounded from record lows.

United Parcel Service Inc gained 6.5 per cent as Stifel upgraded its shares to “buy,” while Amazon.com Inc rose 5.1 per cent on Cowen & Co’s price target increase.

Shares of Chevron Corp and Marathon Oil Corp rose 5.3 per cent and 21.2 per cent, respectively, after the oil companies and their peers announced cost reduction efforts to combat plunging crude prices.

is content editor for Morningstar Australia

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