U.S. Stock Futures Rebound, Oil Surges
April 02 2020 - 6:36AM
Dow Jones News
By Joe Wallace and Chong Koh Ping
U.S. stock futures recovered some ground Thursday, while oil
prices surged on hopes of an end to the Saudi Arabia-Russia price
war.
Contracts tied to the S&P 500 rose 1.6%, suggesting that the
index may recover some of its losses when trading gets under way in
New York. U.S. equities endured their worst start to a new quarter
on record on Wednesday.
Brent-crude, the global benchmark for oil, jumped 10% to $27.22
a barrel after President Trump said he was confident Saudi Arabia
and Russia would resolve their dispute in coming days. Market
sentiment was also buoyed on a Bloomberg News report that China
plans to buy crude for its strategic reserves, analysts said.
A combination of eroding demand, driven by the sharp slowdown in
economic output as countries grapple with the coronavirus pandemic,
and a flood of new supply recently pushed U.S. crude-oil prices
close to their lowest level since 2002.
Traders are increasingly optimistic that major producers will
intervene in the oil market to bolster prices, according to DNB ASA
analyst Helge Andre Martinsen. However, the pandemic's impact on
the economy means the oil market will be significantly oversupplied
in the coming months regardless of whether producers cut back
output, Mr. Martinsen cautioned.
The jump in oil prices lifted shares in U.S. energy producers
before the opening bell in New York. Exxon Mobil and Chevron each
rose more than 5%. Stocks in European energy majors also advanced,
with Royal Dutch Shell up 8.8%.
U.S. government bonds rallied in a sign that investors are
seeking assets they perceive to be the safest. The yield on 10-year
Treasury notes slipped to 0.591%, from 0.630% Wednesday. Yields
drop when bond prices climb.
The Federal Reserve on Wednesday eased rules around how banks
account for their supersafe assets, easing capital constraints for
lenders. The steps are also aimed at preventing trading hiccups in
the market for U.S. government bonds, and easing credit flow.
"Investors are once again flocking to the safety of Treasurys,"
said Colin Low, senior macro analyst at FSMOne.com in Singapore.
"The mini-rally seen last week was a typical relief rally that was
seen in previous bear markets such as in 2008 and 2000. The
economic situation in many markets is going to be uglier, as more
data come in."
The pandemic's toll on the U.S. economy is likely to become
clearer Thursday when the Labor Department releases weekly data on
new unemployment claims. Around six million people may have filed
for unemployment benefits in the week through March 28, according
to economists at Goldman Sachs Group. That would be almost double
the highest number on record, set the previous week.
Some investors also view what appears to be a slowdown in the
rate of infection in Italy, the first Western country to suffer a
major coronavirus emergency, as a sign that a similar lockdown
approach may help other Western countries. The country has become a
test case for whether the U.S. and the rest of Europe might
suppress the pandemic fast enough to avoid a deep economic crisis
while using strategies less draconian than China's.
But Italian authorities are cautioning it will take until after
Easter to cut new infections enough to begin easing restrictions on
travel and work to reopen parts of the economy. New daily
infections have fallen from a peak of over 6,500 on March 21, with
about 4,800 people testing positive on Wednesday. Still, that
represented a rise from 4,100 new cases on Tuesday, according to
the Johns Hopkins University.
"What we're going to see from here on is market movements are
going to be dictated by the virus," said Seema Shah, chief
strategist at Principal Global Investors. The decrease in Italian
deaths showed there was "a glimmer of light at the end of the
tunnel" in the U.S. and other countries, she said. "We still need
to see that full peak in infection rates in a number of countries"
for global stock markets to recover meaningfully, she added.
The Stoxx Europe 600 index was largely flat Thursday. Asian
stock markets ended the day with a mixed performance. The benchmark
in Japan lost 1.4%, while China's Shanghai Composite rose 1.7%.
The pandemic has infected more than 935,000 people globally and
killed more than 47,000. The death toll in the U.S. surpassed
5,100, as confirmed cases climbed to over 215,000. The World Health
Organization has warned that the number of infected could top one
million in a few days.
"Globally, as a whole, the Covid-19 situation is worsening,"
said Mr. Low at FSMOne.com, referring to the illness caused by the
novel coronavirus. "Investors are getting more panicky. They are
fully aware that corporate earnings and the global economy will be
bad for the first and second quarters. But beyond that, there's no
visibility on how these numbers will look like in the third and
fourth quarter because of the fluidity of the Covid situation," he
said.
--Frances Yoon contributed to this article.
Write to Joe Wallace at Joe.Wallace@wsj.com and Chong Koh Ping
at chong.kohping@wsj.com
(END) Dow Jones Newswires
April 02, 2020 06:21 ET (10:21 GMT)
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