Stocks gain after biggest Wall Street sell-off since 1987

European stocks climbed following the biggest sell-off on Wall Street in more than 30 years as investors looked to the US for stronger economic support measures to fight the impact of the coronavirus.

The composite Stoxx 600 index advanced 3 per cent with France’s CAC 40 and Germany’s Dax jumping more than 4 per cent. London’s FTSE 100 rose 2.4 per cent.

The gains have partially reversed Monday’s significant losses, when the Stoxx 600 level fell to its lowest level since 2012 with a drop of nearly 6 per cent.

S&P 500 futures pointed to gains of as much as 3.8 per cent when Wall Street reopened later in the day following a report that the Trump administration had privately urged Senate Republicans to approve a bill to help the US deal with the economic fallout of the pandemic. 

However, investors warned that any rebound would be shortlived without firmer indications Europe and the US were bringing the outbreak under control.

“The knife is still falling,” said John Woods, Asia-Pacific chief investment officer at Credit Suisse, who described the overnight fall on Wall Street as “capitulation”. He said he was not recommending to his clients to re-enter equity markets without signs of stronger fiscal measures to support economies hit by the outbreak.

Jim Reid, a strategist at Deutsche Bank, added that “the impact of the various Western World shutdowns will mean that at its peak the Covid-19 impact on the global economy will likely be worse than the peak of the financial crisis.”

On Tuesday, Australia’s S&P/ASX 200 stock index jumped 5.7 per cent after plunging nearly 10 per cent a day earlier. Japan’s Topix was 1.5 per cent higher after earlier falling as much as 3 per cent. Hong Kong’s Hang Seng added 1 per cent while China’s CSI 300 benchmark of Shanghai- and Shenzhen-listed stocks was little changed.

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Overnight, the S&P 500 plunged 12 per cent in its biggest one-day fall since Black Monday in October 1987 as the US and other countries tightened restrictions on public movements to curb the spread of the virus. Many global stock indices have fallen into bear markets on concerns the coronavirus will lead to a global recession this year.

Traders in Tokyo said the latest indication of stimulus from the White House had fuelled speculation that the US was “one step closer” to the kind of stimulus package investors wanted to see.

But Mohammed Apabhai, head of Citi’s Asia-Pacific trading strategies group, said investors were increasingly concerned about a credit crunch in Asia’s corporate sector. “The equity sell-off is morphing into something much more serious. We now have three or four crises happening at the same time.” 

Moves such as the Federal Reserve’s one-percentage-point rate cut are “welcome, but it’s not enough”, he said.

On Monday the BoJ said that it would buy as much as ¥12tn per year of exchange traded funds to help stabilise markets. 

“You have got some buying in here based on the view, however unfounded, that the BoJ is going to buy big to protect the 1,200 line on the Topix [which is currently trading around 1,240]. I think the market is going to test a lot of these theories in coming days,” said one broker at a large domestic house. 

The Japanese yen, a haven during times of market uncertainty, weakened 0.6 per cent to ¥106.47 per US dollar. The 10-year US Treasury yield rose 5 basis points to 0.767 per cent. Yields rise as bond prices fall.

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Brent crude, the international oil benchmark, rose 2.7 per cent to $30.87 a barrel after dipping below the $30 mark overnight for the first time in four years. US marker West Texas Intermediate rose 4.5 per cent to $30.00.

But analysts warned that the worst was yet to come for the global economy. “Recession for many economies is unfortunately likely,” said Richard Yetsenga, chief economist at ANZ.

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