Coronavirus: Global shares rebound after Wall Street dive, recession warning

A woman wearing face mask walks past a bank electronic board showing the Hong Kong share index at Hong Kong Stock Exchange Tuesday, March. 17, 2020. Shares have reversed early losses in major Asian markets after the U.S. stock market plunged to its worst day in more than three decades. (AP Photo/Vincent Yu)

Shares rebounded in Europe and Asia on Tuesday after a brutal sell-off that gave the U.S. stock market its worst loss in over 30 years, with many economies grinding to a standstill in hopes of containing the spread of the coronavirus.

Paris, London, Hong Kong and Sydney logged solid gains while Tokyo’s benchmark was flat.

“Market experts actually originally predicted at least a 1,000 point crash for the Hang Seng index. But surprise, surprise, there was bottom fishing. Investors went bargaining hunting,” said Francis Lun, a stock analyst in Hong Kong.

Australia’s benchmark led the gains, jumping 5.8 per cent after a 7 per cent plunge on Monday as investors snapped up miners and banks. Tokyo’s Nikkei 225 climbed 0.8 per cent at one point but barely eked out a gain, adding less than 10 points to 17,011.53.

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In early European trading, the CAC 40 in Paris rose 3.4 per cent to 4,012.99 after the government announced $50 billion in aid for individuals and businesses. Germany’s DAX gaine  3 per cent to 9,004.71. Britain’s FTSE 100 fell back from early gains, shedding 0.2 per cent to 5,143.06.

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U.S. futures pointed to gains: the contract for the S&P 500 climbed 3.8 per cent while the future for the Dow Jones Industrial Average added 3.2 per cent.

The rebound in Asia followed news that the Trump administration plans strong support for airlines stricken by the outbreak and is pushing the Senate to enact a massive stimulus package to alleviate losses for businesses and individuals affected by the outbreak, which has infected more than 182,000 people worldwide, 4,661 in the United States.

Some shares in Hong Kong were too attractive to pass up, said Lun.

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“It’s a see-saw battle between the bulls and the bears,” he said. “I think right now the bulls are winning the upper hand. The key is that Hong Kong is dirt cheap.”

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The Nikkei 225 in Tokyo rose to 17,011.53, while Hong Kong’s benchmark jumped 0.9 per cent to 23,263.73. Sydney’s S&P/ASX 200 jumped to 5,293.40, while the Shanghai Composite index sank 0.3 per cent to 2,779.64. The Sensex in Mumbai rose 0.2 per cent to 31,434.96. The Kospi in South Korea dropped 2.5 per cent to 1,672.44. Shares also fell in Southeast Asia.

The Philippine stock market was closed as of Tuesday after the government imposed restrictions on movement in the capital.

Oil prices also rose Tuesday, with U.S. benchmark crude up 3.8 per cent, or $1.90 to $29.79 per barrel in electronic trading on the New York Mercantile Exchange. It plunged $3.03 to $28.70 on Monday. Brent crude, the international standard, picked up 2.1, or 63 cents, to $30.68 per barrel.

Analysts said bargain hunters appeared to be buying to help fill government oil reserves, anticipating China’s economy will get a boost from massive stimulus yet to be announced.

But investors also are betting governments will step up their response to the outbreak.

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“Details as yet are sparse. Investors are pinning their hopes on governments flooding people and businesses with enough cash to survive months of a coronavirus-induced lockdown,” Jasper Lawler of LCG said in a commentary.

The question is how aggressively governments will move to counter the inevitable contractions.

“America needs to go big here for any hope to return to markets. If we are talking hundreds of billions, we think markets can find a base,” Lawler said.

Recent losses in global markets have been the worst since the 2008 financial crisis.

Monday’s 12 per cent drop for the S&P 500, its worst day in more than three decades, came as voices from Wall Street to the White House said the coronavirus may be dragging the economy into a recession.

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The S&P 500 has shed nearly 30 per cent since setting a record less than a month ago, and it’s at its lowest point since the end of 2018. Monday’s precipitous losses accelerated in the last half hour of trading after President Donald Trump said the economy may be headed for a recession and asked Americans to avoid gatherings of more than 10 people.

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The plunge came even though the Federal Reserve rushed to announce a new round of emergency actions before markets opened for trading on Monday. The moves are aimed at propping up the economy and getting financial markets running smoothly again, but they may have raised fears even further. Investors are also waiting for the White House and Congress to offer more aid to an economy that’s increasingly shutting down by the hour.

The Dow Jones Industrial Average plunged 2,997 points, or 12.9 per cent.

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Declines last week ended the longest-ever bull market on Wall Street, nearly 11 years following the financial crisis. There’s seemingly no escape from the uncertainty: From parked airplanes to empty restaurants, nobody knows when economies might revive or even when countries will be able to get the spread of the virus under control.

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Closing businesses can help slow the spread of the virus, but it also takes cash out of the pockets of companies and workers.

The best-case scenario for many investors is that the economic shock will be steep but short, with growth recovering later this year after businesses reopen. Pessimists are preparing for a longer haul.

For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough, and those with mild illness recover in about two weeks. But severe illness including pneumonia can occur, especially in the elderly and people with existing health problems, and recovery could take six weeks in such cases.

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The Federal Reserve has been trying to do what it can to help the economy, and over the weekend it slashed short-term interest rates back to their record low of nearly zero.

It also said it also will buy at least $500 billion of Treasury securities and $200 billion of mortgage-backed securities to help calm the Treasury market, which is a bedrock for the world’s financial system and influences stock and bond prices around the world. Trading in the market was starting to snarl last week, with traders spotting disconcertingly large gaps in prices offered by buyers and sellers.

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The yield on the 10-year Treasury rose to 0.81 per cent from 0.73 per cent late Monday.

In currency trading, the dollar rose to 106.75 Japanese yen from 105.90 yen. The euro weakened to $1.1124 from $1.1184.

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