LONDON, March 27 — European stocks fell today, halting their biggest ever three-day rally in a sign investors were focusing once more on the spread of the coronavirus pandemic despite hopes for further stimulus measures to combat its economic impact.
The pan-European STOXX 600 index was down almost 3.6 per cent by midday in London.
The benchmark index has recovered almost 17 per cent since hitting its lowest since 2013 on March 16, but remains more than 26 per cent below last month’s all-time high in a rout that has erased more than US$3 trillion (RM13 trillion) from the value of European firms.
Stock markets have rallied over the past week on the back of trillions of dollars of enacted and pledged economic stimulus by policymakers worldwide, from central banks to governments.
In Europe, where the pandemic is still far from contained, policymakers have suspended state aid rules and limits on public borrowing and approved US$40 billion in emergency funds to help airlines, among the hardest hit in the global emergency.
The losses came after stock markets rallied in Asia and Wall Street overnight.
MSCI’s All Country World Index, which tracks stocks across 49 countries, was down 0.4 per cent on the day.
E-Mini futures for the S&P 500 reversed course and fell three per cent following three consecutive days of gains in the S&P 500 on Wall Street.
“Rallies don’t last forever, and clearly investors are happy to call time on this one as we head into another uncertain weekend,” said Craig Erlam, analyst at OANDA.
The United States is now the country with the most coronavirus cases, surpassing even China, where the flu-like illness first emerged late last year.
Policymakers may need to offer more stimulus as the virus slams the brakes on economic activity and increases healthcare spending.
“Next week, markets will likely continue to focus on the spread of Covid-19 — whether European cases are reaching a peak, how much of the US will be put in lockdown, and whether China can avoid a second wave,” said Gaetan Peroux, strategist at UBS Global Wealth Management.
“Economic data will most likely take a backseat, as in such strained times it’s difficult to gauge their reliability.”
The US House of Representatives is expected to pass a US$2.2 trillion stimulus package that will flood the world’s largest economy with money to stem the damage caused by the pandemic.
The US Federal Reserve has already slashed rates to zero and launched quantitative easing. The Fed will also take the unprecedented step of offering a direct backstop for corporate loans.
The number of Americans filing claims for unemployment benefits surged to a record of more than three million last week as strict measures to contain the virus pandemic ground the country to a sudden halt, data showed yesterday.
The jobless blowout was announced shortly after Fed Chairman Jerome Powell said the United States “may well be in recession”, an unusual acknowledgement by a Fed chair that the economy may be contracting even before data confirms it.
Global equity markets took the data in their stride, partly as most central banks have already aggressively eased policy and governments are backing this up with big fiscal spending.
“The big picture message is that an expanding Fed balance sheet is correlated with a higher equity market,” said Neil MacKinnon, economist at VTB Capital in London.
Chinese shares, battered this month because of the virus, rose 0.32 per cent today. Shares in South Korea, another country hit hard by the pandemic, rose 1.87 per cent.
Leaders of the Group of 20 major economies pledged yesterday to inject over US$5 trillion into the global economy to limit job and income losses from the coronavirus.
Currency market
In the currency market, the greenback fell 0.8 per cent to 108.80 yen, on pace for a two per cent weekly decline.
The index that measures the greenback against a basket of peers was up 0.2 per cent on the day, although it was headed for steep weekly declines against the Swiss franc, pound, and euro.
The US currency’s fall after two weeks of gains suggests the Fed’s efforts to relieve a crunch in the dollar funding market are working, some analysts said.
The yield on benchmark 10-year Treasury notes fell to 0.7662 per cent, while the two-year yield edged up to 0.2868 per cent.
Yields were headed for a weekly decline, taking cues from the Fed’s extraordinary steps to bolster markets and the huge stimulus package.
US crude fell 1.15 per cent to US$22.34 a barrel, and Brent crude fell 2.39 per cent to US$25.71. Energy markets have been caught in a tug-of-war between falling fuel demand, hopes for stimulus spending and worries about excess oil supplies.
Gold, normally bought as a safe haven, was slightly lower. Spot gold fell 0.7 per cent to US$1,617.70 per ounce.
Gold market participants remained concerned about a supply squeeze after a sharp divergence between prices in London and New York. The virus has grounded planes used to transport gold and closed precious metal refineries. — Reuters
