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Tuesday Mar 10 2020

Equity, crude prices recover but investors remain wary after Black Monday

A mask-clad pedestrian passes in front of a quotation board displaying the share price numbers of the Tokyo Stock Exchange in Tokyo on March 10, 2020. Photo: AFP

HONG KONG: Equity markets in Asia rallied after a surge in the oil prices on Tuesday, a day after global markets suffered their biggest losses in more than a decade, however analysts remain wary due to the coronavirus outbreak.

Global stock markets capitulated on what has become known as "Black Monday", with the Dow on Wall Street plunging more than 2,000 points, triggering an emergency break in trade.

Asia had suffered a meltdown as the deadly virus continues to infect thousands and shows no sign of abating.

But there was relief on Tuesday as oil jumped as much as eight percent after plunging by a third the previous day, in the worst session since the 1991 Gulf War.

The rush for safe investments also sent yields on US Treasuries to record lows, while the VIX "fear" index is within touching distance of its record high seen during the global financial crisis.

After a shaky start that had sparked fears of another rout, regional markets pushed into positive territory, with energy firms clawing back some of their massive losses.

Tokyo ended up 0.9% and Shanghai finished 1.8% higher, with Hong Kong adding 1.4%.

Sydney surged more than 3%, while Singapore, Jakarta and Bangkok gained more than 2%. Manila, Taipei and Seoul also clocked up gains, though Wellington fell 1.8% .

Also read: Oil prices nosedive by third as Saudi signals hiking supply in coronavirus-hit market

In early trade, London, Paris and Frankfurt rose more than one percent.

Gulf stocks also saw a bounce, with markets in Saudi Arabia and Dubai both up more than 5%, Abu Dhabi gaining 4.2%, and Kuwait and Qatar also making big advances.

But Russia's RTS stock index dived more than 10% in early exchanges.

Sentiment was boosted by news that Chinese President Xi Jinping had visited Wuhan, the centre of the virus outbreak, lifting hopes that the country is well on track to recovery as new infections fall. The news comes after weeks of quarantines that have rocked the global and local economy.

Speculation is also mounting that the Federal Reserve will cut interest rates again, having slashed them last week, while the European Central Bank is due to meet this week to discuss monetary policy.

Donald Trump said his administration would be meeting lawmakers to discuss economic relief measures to mitigate the impact of the disease as it spreads through the United States.

Still, while governments and central banks have unleashed or are preparing stimulus, the spread of COVID-19 is putting a huge strain on economies and stoking concerns of a worldwide recession.

Also read: Coronavirus fears and drop in oil prices trigger collapse of Asian markets

That has now been compounded by an oil price war between Saudi Arabia and Russia that sparked Monday's crude price plunge.

Italy in quarantine

"Given market moves and other developments, we expect to see further stimulus announcements, both monetary and fiscal. As these come, they should help to stabilise sentiment, though we believe fear and volatility will remain high for some time," said Esty Dwek, at Natixis Investment Managers.

While the outbreak appears to be slowing in China, investors are desperately looking for signs of an easing in Europe and the United States.

Italy is now the worst-hit country outside China, with more than 9,000 cases and hundreds of deaths. On Monday, Prime Minister Giuseppe Conte said he was extending restrictions on travel and public gatherings initially imposed on the north to the entire country.

AxiCorp's Stephen Innes warned the panic on markets had not yet stopped, with "growing evidence that an oil shock of historic proportions is now underway".

And Toshikazu Horiuchi, a broker at IwaiCosmo Securities, added: "Nervous trading is likely to continue for now."

Top exporter Saudi Arabia sparked the crisis when it slashed prices following a bust-up with Moscow over crude output cuts, starting a price war.

Also read: Wall Street Week Ahead: Investors look for buys as virus fears crush travel stocks

Chris Lafakis, energy economist at Moody's Analytics, said: "With COVID-19 already savaging demand for travel and transportation, the last thing oil producers needed was a supply shock that would hit their pocketbooks even more.

"The world is now drowning in a glut of crude oil that appears likely to persist for months."

The dollar fell back against high-yielding, riskier units after surging on Monday.

The Mexican peso led the gains, soaring more than six percent, while the Russian ruble was up almost three percent. South Korea´s won put on one percent.

Still, the dollar did regain some ground against the safe-haven yen, jumping 2.3%.

Key figures around 0820 GMT

Brent Crude: UP 4.4% at $35.88 per barrel

West Texas Intermediate: UP 5.0% at $32.68

Tokyo - Nikkei 225: UP 0.9% at 19,867.12 (close)

Hong Kong - Hang Seng: UP 1.4% at 25,392.51 (close)

Shanghai - Composite: UP 1.8% at 2,996.76 (close)

London - FTSE 100: UP 1.2% at 6,033.81

Dollar/yen: UP at 104.02 yen from 102.42 yen at 2050 GMT

Euro/dollar: DOWN at $1.1375 from $1.1448

Pound/dollar: DOWN at $1.3060 from $1.3112

Euro/pound: DOWN at 87.12 pence from 87.28 pence

New York - Dow: DOWN 7.8 percent at 23,851.02 (close)