U.S. stocks sink with bonds; crude oil tumbles
Financial markets continued to spasm Wednesday, with U.S. stocks reversing Tuesday's rally, as the economic fallout from the pandemic outpaces the massive response from governments and central banks.
The S&P 500 tumbled about 5%, resuming a sell-off that's taken it 29% from its record. The index rallied 6% Tuesday after the Trump administration considered up to $1 trillion in spending and the Federal Reserve dusted off crisis-era programs to stabilize financial markets.
Treasuries were steady after the biggest yield jump since 1982 and municipal bonds extended deepest rout since 1987 as markets braced for the potential flood of spending. European bonds came in for a bashing. Oil dropped to an 18-year low. The dollar strengthened a seventh straight day, while the pound hit its lowest level against the greenback since 1985.
Governments have pledged or are considering about $1.14 trillion in fiscal support to offset the economic shock from the pandemic, with the Trump administration moving toward a big package, but the virus continues to spread at a pace that is forcing massive shutdowns across the globe.
"The missing fundamental ingredient for a sustainable recovery in risk appetite is some evidence that the growth of global Covid-19 infection rates is peaking," said Paul O'Connor, head of multi-asset at Janus Henderson Investors. "Clearly, we are not there yet."
The planned U.S. stimulus could amount to $1.2 trillion, aiming to stave off the worst impact of a crisis that already looks set to plunge many of the world's economies into recession. Meantime, the Federal Reserve reintroduced additional crisis-era tools to stabilize financial markets. Those responses came after stresses appeared in the short-term funding markets.
"I don't think we're out of the woods yet in terms of liquidity," Mark Konyn, chief investment officer at AIA Group in Hong Kong, told Bloomberg TV. "It's a question of when the fiscal measures will have the most efficacy."
In Germany, Angela Merkel said the government will not rule out joint European Union debt issuance to help contain the impact.
Elsewhere, Bloomberg's industrial-metals index dropped for a third day, with copper, nickel and aluminum among the biggest losers. Gold resumed losses as traders sold the metal to cover margin calls in other markets.
These are the main moves in markets:
Stocks:
- The S&P 500 fell 5.5% as of 9:46 a.m. in New York.
- The Stoxx Europe 600 Index fell 4.7%.
- MSCI All Country World Index dropped 1.5%
Currencies:
- The Bloomberg Dollar Spot Index jumped 0.9%
- The yen was up 0.2% at 107.47 per dollar.
- The euro bought $1.0970, down 0.3%.
Bonds:
- The yield on 10-year Treasuries fell two basis points to 1.07%. It jumped 36 basis points on Tuesday.
- The yield on German 10-year bunds climbed 15 basis points to -0.28%
- Italy's 10-year yield soared 34 basis points to 2.70%
Commodities:
- West Texas Intermediate crude dropped 8.9% to $24.55 a barrel.
- Gold was down 1.4% at $1,507 an ounce.
