Markets on edge amid turmoil

Deepening concern about the COVID-19 crisis kept global markets on edge at the end of another horrific week.

Deepening concern about the economic implications of the global COVID-19 crisis and intensifying lockdowns and quarantine measures kept global markets on edge at the end of another horrific week in global financial markets.

Despite a modest pullback in the greenback as central banks prepared to mitigate the extreme shortage of US dollars caused by intensifying demand for safe havens since the crisis began, the Australian sharemarket gave up almost all of an intraday rise, although US index futures rose strongly — as did Asian markets which rely heavily on US dollar funding.

Australia’s benchmark S&P/ASX 200 share index closed up 0.7 per cent at 4816.6 after rising 4.9 per cent intraday, leaving it with a massive 13 per cent slide for the week and a 33 per cent bear market slump from a record high four weeks ago.

But elsewhere in the region, China’s Shanghai Composite rose 1.6 per cent, Japan’s Nikkei 225 gained 1 per cent, the Hang Seng index rose 5 per cent, South Korea’s KOSPI surged 7.4 per cent and the FTSE Straits Times index rose 2.1 per cent.

The strength carried over to European markets, where the Euro Stoxx 50 surged 6.1 per cent and the FTSE 100 rose 4.5 per cent after further policy stimulus this week, including a €750bn ($1.36 trillion) extension of the ECB’s quantitative easing program.

S&P 500 futures jumped 3.9 per cent as the Trump administration pushed congress to urgently pass a $US1 trillion ($1.7 trillion) stimulus package to support the economy. US Treasury Secretary Steven Mnuchin said he discussed the legislation with Senate Majority Leader Mitch McConnell, the chamber’s Democratic leader, Chuck Schumer, and House Speaker Nancy Pelosi and urged them to move because major parts of the economy have been “shut down”.

“Fiscal stimulus has been geared to shore up liquidity conditions in financial markets and for corporates,” said Stephen Innes, chief market strategist at AxiCorp Asia Pacific. “It’s seemingly having a positive effect (but) given the market needed a trillion dollars worth of help this week, to just make it to the weekend — that’s a mighty significant number.”

Mr Innes warned it was “the calm before the storm” as “the nasty impact on corporate solvency will become more evident in the weeks ahead of when the demand shock filters through to the real economy”.

Meanwhile the Australian dollar surged US2.4c or 4.2 per cent to US59.85c — up an incredible 8.5 per cent from a 17-year low of US55.10c just over 24 hours earlier — as the US dollar retreated 1.5 per cent against the major currencies following a massive 8.8 per cent rise in the past two weeks as the coronavirus pandemic worsened.

It came as nine central banks including the Reserve Bank of Australia reopened crisis-era FX swap lines with the Federal Reserve to provide US dollar liquidity at a time when a rush for US dollars threatens to exacerbate the crisis.

“Sharemarkets remained un­der pressure over the last week as the number of coronavirus cases continued to surge, economic data started to weaken sharply and financial markets saw increasing dysfunction,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital.

“The latter was highlighted by a blowout in corporate borrowing rates and a surge in government bond yields — as fund managers facing redemptions sold their liquid previously strong positions — and increasing difficulty in accessing money market funding.

“At least, this has been matched by ever more aggressive government support measures and central bank moves to boost liquidity and by the end of the week there were some signs that the latter is helping with bond yields falling again.”

Australian benchmark 10-year government bond yields tumbled 35 basis points to 1.14 per cent — a day after spiking a record 100 basis points to a 15-month high of 2.5 per cent — while three-year yields fell 6bps to 0.28 per cent as the RBA bought up to $5bn of government bonds to achieve its new target of 0.25 per cent for the three-year note.

Crude oil continued to surge, with West Texas Crude up 8 per cent to $US27.49 a barrel in Asia, adding to a massive 24 per cent rise overnight after President Trump suggested he may tackle the oil crisis by brokering a deal between Moscow and Riyadh, and US Treasury Secretary Mnuchin proposed buying $US20bn of US crude for the Strategic Petroleum Reserve, while Saudi Arabia plans to increase supply in a price war with Russia even as COVID-19 saps demand.

Meanwhile, economists reiterated predictions of a major recession amid unprecedented economic shutdowns.

Goldman Sachs predicted Australia’s economic growth in 2020 will be the worst since the Depression.

The US investment bank’s Australian chief economist, Andrew Boak, forecast a 6 per cent fall in real GDP in annual average terms after slashing his forecasts amid a “severe deterioration”.