Markets bounce back a little as on promise of central bank stimulus

US markets were expected to follow the European and Asian lead, with major stock futures trading up about 4%. Japan’s Nikkei had ended the day up 0.85%, after earlier touching its lowest level since April 2017.

Australia’s index closed up 3.1% as some went hunting for bargains in beaten down stocks.

China’s benchmark Shanghai Composite traded 2.1% higher as new domestic coronavirus cases tumbled and President Xi Jinping’s visit to the epicentre of the epidemic lifted sentiment.

The news continued to be negative elsewhere, however, with Italy ordering its citizens not to move around other than for work and emergencies and banning all public gatherings. “Though uncertainty is very high, we now expect similar restrictions will be put in place across Europe in the coming weeks,” warned economists at JPMorgan.

“We are now expecting a rolling, first-half 2020 global growth contraction and a powerful global disinflationary wave to take hold,” they added. “We expect the Fed to cut to zero at or before its March 18 meeting.”

Onus on central banks

Oil rallied avout 5% to claw back some of its huge losses from Monday, offering hope that markets had found a floor despite still-fragile sentiment. Benchmark Brent crude futures bounced by $2 to $36.40 a barrel by 9.30am GMT, paring back earlier gains that saw prices touch a session high of $37.38 a barrel.

Gold prices fell 1%, retreating from the last session’s jump above the key $1,700 level, as safe-haven demand waned a little amid speculation about global stimulus measures.

“In times of turmoil, nothing is more important in restoring confidence than the government appearing calm and in control of the situation, [however] tenuous that control may be,” Jeffrey Halley, senior market analyst at broker Oanda, said in a note.

Such has been the conflagration of market wealth that analysts assumed policymakers would have to react aggressively to prevent an economic crisis.

On Monday, the US Fed  sharply stepped up the size of its fund injections into markets to head off stress. Having delivered an emergency rate cut only last week, investors are fully pricing an easing of at least 75bps at the next Fed meeting on March 18, while a cut to near zero is now seen as likely by April.

Britain’s finance minister is due to deliver his annual budget on Wednesday and there is much talk of co-ordinated stimulus with the Bank of England (BOE). The European Central Bank (ECB) meets on Thursday and will be under intense pressure to act, even though eurozone rates are already deeply negative.

“Italy’s decision to quarantine the whole country will affect 15% of Europe’s GDP, putting the ECB at the forefront of efforts to cushion the escalating economic deterioration,” said Brian Martin, a senior international economist at ANZ.

Bonds had charged ahead of the central banks to essentially price in a global recession of unknown length. Yields on 10-year US treasuries dipped to as little as 0.318% on Monday — a level unthinkable just a week ago — but rose back to be last at 0.6818% on Tuesday amid the stimulus chatter.

That helped the dollar recoup some of its recent hefty losses to reach ¥104.70, edging away from Monday’s three-year trough around ¥101.17. The euro eased back to $1.1350, after climbing 1.4% on Monday to its highest in over 13 months at $1.1492.

Reuters