Global stocks closed mostly higher on Thursday, buoyed by hopes the oil price war between Russia and Saudi Arabia could soon ease, but investors remained concerned about the economic shock caused by the coronavirus outbreak.
The US S&P 500 was up 2.3 per cent after having swung between positive and negative territory through the day, while European and most Asian bourses also recorded gains. The Nasdaq Composite was up 1.3 per cent.
Energy stocks led the markets higher, boosted by a more-then-20 per cent surge in oil prices after President Donald Trump said that he expects Russia and Saudi Arabia to announce huge cuts in oil production — a suggestion rejected by the Kremlin.
Investors also had to digest mounting evidence that the hit to the US and global economy from coronavirus will be even more severe than previously thought. US unemployment data showed a fresh jump in claimant numbers, with a record 6.6m Americans applying for benefits last week, almost double the number that analysts had estimated.
“This is eye watering and we are still only at the beginning of the lay-offs spurred by the lockdowns throughout the country,” said Aberdeen Standard Investments senior economist James McCann.
Randy Brown, chief investment officer at Sun Life, said he expects the economic data to sour even more from here, meaning equity prices could fall further, despite having already plunged about 20 per cent in the first three months of 2020.
“I don’t believe all the bad news is baked into equity prices,” he said. “It’s likely the market will have a second leg down.”
Mr Brown said he is instead taking cues from government bond markets, which signal a much more dire outlook. The benchmark US 10-year Treasury now yields just 0.62 per cent, little changed on the day, while the yield on the two-year note sits at 0.23 per cent.
Goldman Sachs analysts said the data suggested the pandemic is “having very large negative impacts on the US economy”, estimating a 6.2 per cent decline in US GDP in 2020 and an unemployment rate reaching 15 per cent by the middle of the year.
Ronald Temple, head of US equity at Lazard Asset Management said unemployment could reach 10 per cent in a month’s time.
“While the economic slowdown has been sharp and sudden, I think the recovery is likely to disappoint people expecting a quick return to normal,” he added.
Economists are trying to gauge how long the current lockdown of activity across the developed world might last and how bad the economic damage will be. Companies have cancelled dividends and cut earnings guidance across Europe as the corporate impact of the pandemic mounts.
Bank of America sharply downgraded its expectations for global growth on Thursday, as it warned that the US faces its deepest recession on record. The bank said its forecast for US output to decline 10.4 per cent during the downturn would be the deepest recession on record, nearly five times more severe than the postwar average.
The US is in an earlier stage of combating the pandemic compared with other countries, meaning there would be more bad news in the coming days, analysts said.
“The US is weeks behind many European and Asian countries”, said Marija Veitmane, senior multi-asset class strategist at State Street Global Markets. “It virtually guarantees a horrific infections rate and death headlines, as well economic weakness and earnings collapse reports.”
S&P Global warned that the debt default rate among US non-financial companies could potentially rise above 10 per cent in the next 12 months, and Europe’s into the high single digits.
Investors are also waiting on more clarity about the oil outlook, though speculators took bullish positions. Brent crude settled 21 per cent higher at $29.94 a barrel.
Prices were already moving sharply higher early in the session after comments from Mr Trump on Wednesday that he believed a deal to end the oil price war — that has taken Brent to the lowest level since 2002 — would be made in a “few days”.
One hope that investors have clung to in recent sessions is the possibility of additional stimulus from policymakers to support markets and shore up financial systems. But in Asia those hopes could be dimming as analysts warned that further relief measures from China might not be forthcoming.
Iris Pang, chief China economist at ING, said Beijing might choose to delay a targeted cut to banks’ reserve requirement ratios, which could funnel more liquidity to businesses hit by the crisis.
