By Joe Wallace and Joanne Chiu
U.S. stocks wobbled in early trading and oil dropped sharply
Monday as investors grappled with the mounting economic toll after
government officials signaled that measures to contain the
coronavirus pandemic may remain in place for an extended time.
The S&P 500 index edged up 0.9%, while the Dow Jones
Industrial Average rose 0.4% and the Nasdaq Composite Index added
1.1%. Earlier, U.S. crude-oil futures dropped to their lowest level
in over 18 years as analysts forecast that quarantine measures are
leading to the biggest decline in oil demand in history.
The White House on Sunday extended its social-distancing
guidelines through the end of April. The move marks a shift in
stance for President Trump, who had said that he hoped to ease
restrictions in coming days to limit the economic damage. Investors
remain concerned that efforts to contain the outbreak will lead to
significant pain for businesses and the broader economy.
"It's pretty clear that the next quarter at least is going to be
extremely poor," said Oliver Jones, market economist at Capital
Economics. "We're going to see some incredibly steep contractions
in economic activity in many advanced economies. It's quite
historic."
The end of the first quarter, on Tuesday, will also test many
businesses' ability to pay bills. Traders meanwhile are bracing for
fresh constraints on liquidity in some financial markets as
investors take stock of portfolios and banks assess their balance
sheets at the end of March.
U.S. crude-oil prices came under renewed pressure as the
restrictions on business activity in most economies -- combined
with the threat of elevated production levels from Saudi Arabia and
Russia -- raised the prospect of a longer downturn in fuel
markets.
Global oil demand is set to drop by 12 million barrels a day in
the second quarter in the steepest decline on record, according to
analysts at Bank of America. With production also set to pick up,
the bank forecasts that both U.S. and global crude futures will
fall below $20 a barrel in the coming months and that the world may
run out of storage space for oil.
West Texas Intermediate, the main U.S. crude gauge, fell 6.5% to
$20.12 a barrel, approaching levels last seen in February 2002.
Brent crude, the global oil benchmark, slumped 6.2%, extending its
plunge this year to 60%.
Stock prices don't yet reflect the level of disruption to
business activity taking place in the U.S., said Sophie Huynh, a
strategist at Société Générale. Curbs on the ability of companies
receiving government support to return money to shareholders will
also erode what has been a key source of support for the market in
recent years, she added.
Ahead of the bell in New York, shares in Abbott Laboratories
jumped 9.3% after the drugmaker said the U.S. Food and Drug
Administration had approved an emergency-use coronavirus test.
U.S. carriers including United Airlines Holdings, Delta Air
Lines and American Airlines Group fell in premarket trading as the
companies cut flight schedules and look for other ways to pare
costs, including eliminating jobs and cutting pay.
In another sign of investor caution, the yield on the 10-year
U.S. Treasury note, a security that is seen as a haven, fell to
0.652%, from 0.744% Friday.
Markets have entered a new phase in their response to the
pandemic, said James McCormick, a strategist at NatWest Markets.
After governments and central banks took extraordinary steps to
backstop livelihoods and the financial system in March, investors
are now attempting to assess the economic impact of the worsening
pandemic and the effectiveness with which these stimulus packages
are deployed.
"In April, we're settling into understanding a bit more about
the growth impact and looking hopefully for some signs of
flattening of the infection and mortality curves," Mr. McCormick
said.
Investors are awaiting a series of data releases this week that
will start to reveal the economic strain exerted by the pandemic
and measures to contain the spread of the virus. In the U.S.,
surveys of purchasing managers are expected to show a steep decline
in manufacturing activity, while jobless claims are likely to rise
again after last week's record surge.
"There's still a lot of bad news to come on the macro front,"
said Nicholas Brooks, head of research at International Capital
Group, referring both to economic data and the coronavirus death
toll. "It's hard to see a sustained rally in markets in this kind
of environment."
In Europe, the pan-continental Stoxx Europe 600 index edged down
0.6%, led lower by a 2.5% decline in the U.K.'s FTSE 250 index. A
senior medical adviser to the British government said restrictions
on social interaction and businesses are likely to remain in place
for several more months. Shares in retailers and property
developers were particularly hard hit.
It is too early to consider buying stocks given the level of
uncertainty about the spread of coronavirus and its economic
impact, said Monica Defend, head of research at Amundi, Europe's
largest asset manager.
"The visibility remains too poor to re-enter the market," Ms.
Defend said. "The markets will remain volatile."
The South African rand fell to a record against the dollar after
Moody's Investors Service cut its credit rating to junk. The
downgrade, long expected by investors, will make it more expensive
for South Africa to issue local debt as raises funds to combat the
pandemic, said Ilan Solot, global currency strategist at Brown
Brothers Harriman.
In Asia, Japan's Nikkei 225 index, which logged its best week in
its history last week, pulled back more than 1.5%. Hong Kong's Hang
Seng Index and the Shanghai Composite in mainland China also
retreated.
Monetary authorities in the region took further steps to shore
up markets and economies. China's central bank cut an interbank
interest rate, while its counterpart in New Zealand said it would
start buying corporate bonds to help companies stay afloat.
Singapore, which uses foreign-exchange rates rather than borrowing
costs as its main policy tool, also eased policy.
One outlier in global markets was Australia, whose benchmark
S&P/ASX 200 soared 7% by the close of trading Monday after the
government unveiled an A$130 billion ($80.1 billion) wage-subsidy
program.
The renewed volatility follows a week in which the Dow Jones
Industrial Average logged its biggest advance since 1938.
"We've had the rally, and now we might have a bit more of the
reality," said Sean Taylor, chief investment officer for the
Asia-Pacific region at asset manager DWS.
The U.S. move to extend social distancing reflects how the focus
of the pandemic had shifted from China to the U.S. and Europe, with
public-health measures bringing economic activity to a near
standstill and reducing global demand, Mr. Taylor said.
Write to Joe Wallace at Joe.Wallace@wsj.com and Joanne Chiu at
joanne.chiu@wsj.com
(END) Dow Jones Newswires
March 30, 2020 09:46 ET (13:46 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.