European markets and US stock futures snapped higher in frenetic trading on Friday, partially erasing a rout in global shares caused by spiralling concerns over the impact of the coronavirus.
London’s FTSE 100 rose nearly 9 per cent, clawing back ground after shedding a tenth of its value on Thursday. The Stoxx Europe 600 gained 8.1 per cent following its worst single session in history.
US stock futures hit their maximum permitted gains of 5 per cent, triggering a “limit up” mechanism designed to control wild swings. The rebound follows the largest one-day drop on Wall Street since 1987.
The circuit breakers have been hit multiple times this week in both directions, underlining the scale of the market volatility. The Cboe volatility index — known as Wall Street’s “fear gauge” — this week jumped to its highest levels since the financial crisis.
Sentiment was boosted by signs of a significant policy response to the disease. The EU signalled it was ready to use emergency flexibility in the bloc’s budget rules to help governments pour money into the fight against coronavirus, while several investment banks now expect the Federal Reserve to cut interest rates to zero when it meets next week.
Daily moves of several percentage points have become commonplace in global markets during the past weeks, as traders grapple with the escalating economic disruption from the viral outbreak while central banks offer up new measures to ease the flow of credit.
The People’s Bank of China on Friday cut reserve requirements for banks in a move that should help to ease borrowing conditions for companies that have been hurt by the outbreak during the past six weeks. Norway’s central bank cut interest rates, while the Bank of Japan bought billions of dollars of Japanese government bonds and the Reserve Bank of Australia injected A$8.8bn ($5.5bn) into the financial system.
US Treasuries slipped in response. The yield on the benchmark 10-year note rose 0.08 percentage points to 0.93 per cent. Yields move inversely to prices.
Authorities in Europe also moved to try to calm markets. Italian and Spanish market regulators banned bets against 154 stocks in an attempt to lessen the tumult in their equities markets. The short selling bans are at present in effect for Friday’s trading session only.
Economic disruption across Europe is mounting as the virus spreads. France has urged its citizens to avoid travel and has closed schools; Belgium will shut schools, restaurants and bars later on Friday; and in Italy, which is suffering the most severe outbreak in Europe, the 60m population has been living under lockdown for much of this week.
Markets have reflected these extraordinary circumstances. The Stoxx Europe 600, which tracks the region’s largest companies, has dropped more than 30 per cent in less than a month, while government bonds have rallied as investors search for safe corners of the market.
Markets in Asia-Pacific staged wild moves on Friday, with Sydney’s S&P/ASX 200 swinging more than 12 per cent during the day before closing 4.4 per cent higher.
Japan’s Topix index closed 5 per cent lower after earlier trading down as much as 9 per cent.
Investors remained cautious about dipping their toes back into the market, said Masamichi Adachi, an economist at UBS in Tokyo. One trader in the Japanese capital said: “Nobody wants to hold any positions into the weekend.”
Elsewhere, China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 1.4 per cent while Hong Kong’s Hang Seng was off a similar amount. Both indices staged sharp recoveries from earlier losses.
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Earlier, central bank action had failed to impress investors. The Federal Reserve promised on Thursday to funnel trillions of dollars into short-term funding markets — the third injection in four days — after investors complained of glitches in the US government bond market.
“You are seeing the market function melting down, with no standard correlations between asset classes,” said Mr Adachi.
The European Central Bank on Thursday declined to join the Fed and Bank of England in cutting interest rates but announced a package of economic support measures.
Additional reporting by Jim Brunsden in Brussels and Don Weinland in Beijing
https://www.ft.com/content/3bab76ac-64cd-11ea-a6cd-df28cc3c6a68
2020-03-13 13:01:36Z
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