Market’s late dive tarnishes hope

US monetary and fiscal stimulus was the linchpin of a markets rebound this week, but the ASX 200 dived late on Friday.

A massive lift in US monetary and fiscal stimulus was the linchpin of a stunning rebound in global equities including Australian shares and the dollar this week as the US Federal Reserve moved to a broader and unlimited quantitative easing and a $US2 trillion ($3.3 trillion) stimulus package passed the Senate.

But while Australia’s S&P/ASX 200 broke a four-week losing streak with a 0.5 per cent rise to 4842.2 points this week, a huge 5.5 per cent fall in the index late on Friday was disconcerting.

After plunging 8.6 per cent to a seven-year low of 4402.5 points on Monday as US politicians struggled to get past their ideological differences, the S&P/ASX 200 rebounded as much as 19 per cent over the course of the week as panicking global markets held a gun to the head of US policymakers.

However, even with US President Donald Trump set to sign off on the deal later on Friday, the ASX 200 fell 7.5 per cent from a nine-day high of 5236.7 and formed what traders call a “bearish key reversal” pattern. Hardest hit were healthcare and banks, while property stocks were also sold off as retailers rush to shut stores.

Asian markets were mostly in the green, but European markets opened lower, with London’s FTSE 100 down 3.6 per cent in the morning session and Germany’s Dax falling 2.1 per cent.

US futures turned lower, although the fall followed an incredible 20 per cent bounce in the S&P 500 from a three-year low this week.

“In response to the corona­virus pandemic, more central banks and governments have been pulling out all of the stops to quell the impact on lives and the global economy,” Citi US economist Dana Peterson said.

“Financial markets rallied in response on the news, following a month of steep losses, and as China appears to be ready to fully return back to work,” Ms Peterson added.

But as the negative data rolls in — especially in Europe as business expectations tank, and in the US as job losses rise — and as travel bans persist, financial markets may be challenged to remain optimistic.

The Dow Jones Industrial Average actually rose 21.3 per cent on a daily close basis — ending its shortest “bear market” in history, based on the standard definition of a 20 per cent rise.

But the bull market that formed this week may also prove to be the shortest on record.

Analysts are anticipating huge month-end demand next Tuesday for global equities from asset managers who need to buy equities and sell bonds to maintain their portfolio weightings.

But after such a strong bounce this week, the market might have already made some room for that.

Meanwhile the mass withdrawal of corporate earnings guidance and the deferral of some dividends is doing nothing for confidence in the consensus-based valuation or dividend yield of the market. And as the global COVID-19 crisis worsens in the West, particularly in the US, there a risk of a “sell-on-fact” reaction to the final passage of the US fiscal stimulus bill.

US weekly initial jobless claims data on Thursday were a shock, even if they were below the worst-case estimates, and likely to rise even further.

Governments and central banks are indicating they are prepared to do whatever it takes, but while lessening a potential ­financial and economic crisis, such stimulus measures will struggle to get traction while lockdowns are in place.

In the short term they have fired their shots and the market will worry about the pandemic and associated lockdowns, with UBS and NAB economists joining the list of those predicting deep recessions in Australia, and UBS even warning of a potential depression.