Wall Street failed to record two consecutive days in positive territory, succumbing to a late sell-off that sent the S&P 500 down 4.3 per cent on Friday and left the index nursing a 15 per cent decline for the week, even as equity markets elsewhere staged a recovery.
While another flurry of central bank support provided investors with some heart, particularly in the eurozone, it was countered by the decision by Andrew Cuomo, New York governor, to order most of the state’s workforce to stay at home, to check the spread of the coronavirus.
That order, on top of a similar move to enforce sweeping social distancing measures in California the previous night, threatened to exacerbate the financial and economic consequences of the virus, which already seems certain to plunge the US into recession.
Goldman Sachs on Friday warned US gross domestic product would decline at an annualised rate of 24 per cent in the second quarter due to the pandemic. The group also said the disruption caused by the outbreak suggests jobless claims could hit more than 2m, an unprecedented level, in the next weekly report on Thursday.
“The avalanche of economic sudden stop news hitting the markets reached a tipping point, triggering another wave of forced selling despite central bank expanding some of their circuit breakers,” said Mohamed El-Erian, chief economic adviser at Allianz.
Illustrating investors’ anxiety over the impact from the pandemic, the Cboe Volatility index — known as the market’s “fear gauge” — remained elevated at the 65 level. That’s down from its year-high of 85.47 but far from its year-low of 11.75. The yield on the US 10-year Treasury bond fell 0.26 percentage points to 0.88 per cent.
“People are frightened going long equities into the weekend,” said Mark Grant, chief global strategist at investment group B Riley FBR. “People are holding on to as much cash as possible, following all of the lockdowns news . . . Nobody knows when we are getting out of this.”
The latest sell-off fixed the S&P 500’s weekly decline at 15 per cent, and it is on track for its worst month in decades. The benchmark closed 0.5 per cent higher on Thursday, the first day it had moved less than 1 per cent in 14 sessions, but normal service of late resumed on Friday. The Dow Jones Industrial Average also moved sharply, ending down 4.6 per cent, and the tech-heavy Nasdaq Composite was off 3.8 per cent.
European markets did record their second consecutive day of increases, although not all could hold on to early gains of more than 5 per cent.
London’s FTSE 100 was up 0.8 per cent, while the composite Stoxx Europe 600 rose 1.8 per cent. The regional benchmark has recovered roughly 10 per cent from its lows this week, but has still lost more than a third of its value since pandemic fears picked up one month ago. Meanwhile, Asian markets rose overnight, with gains for Australia, China and South Korea.
Global stocks have been unable to hold on to any gains over the past month, and traders warned that any rebound could be temporary until there were signs that the pandemic’s spread was stalling.
“Stocks continue to react positively to central bank actions, which seem faster than what we saw in the global financial crisis,” said Kristina Hooper, strategist at Invesco. “However, I believe we should expect continued volatility as news flow — especially around fiscal stimulus — will continue to move markets up and down.”
Central bank interventions have sought to stem the economic hit from the spread of coronavirus, and problems in financial markets that have resulted from the sudden change in fortunes for borrowers. The Federal Reserve on Friday said it would support the US municipal bond market at a time when city and state governments are spending heavily on the public health emergency, by backstopping money market funds that invest in municipal debt.
It was reported on Friday that BNY Mellon had stepped in this week to support one of its money market funds, buying $1.2bn of assets from the Dreyfus Cash Management fund as it suffered outflows.
The European Central Bank, Fed and Bank of England have this week announced measures ranging from buying hundreds of billions of euros of bonds, to swap lines and interest rate cuts. Norway’s central bank on Friday slashed its main rate by three-quarters of a percentage point.
Trading volumes on Wall Street jumped on Friday because of “quadruple witching” — a day that brings the simultaneous expiration of options and futures for indices and stocks.
US benchmark West Texas Intermediate crude oil for April delivery plunged more than $5 a barrel, or 21 per cent, to $19.84 a barrel in a wild last day of trading before expiry. Other oil futures contracts also fell, with May WTI off $2.27 at $23.64 a barrel.
Brent crude oil, the global benchmark, briefly rose above $30 a barrel, pushed higher by reports that US President Donald Trump could intervene in the Russia-Saudi price war. However, it settled down 5.2 per cent at $26.98 a barrel.
For their part, currencies calmed after being upended by a surging US dollar earlier in the week as companies and banks hoarded dollars. Sterling gained 1 per cent to trade at $1.16, picking up from multi-decade lows touched earlier in the week.
“While the latest central bank actions might have materially helped, it is still too early to call for a bottom,” said Chris Turner, global head of markets at ING. “The dollar funding squeeze remains a dominant theme in FX markets, and the global economic outlook remains highly uncertain, with clear downside risks.”
Additional reporting by Gregory Meyer and Derek Brower
Source: Economy - ft.com
