By Anna Isaac and Chong Koh Ping
U.S. stock futures drifted higher Wednesday, following a
roller-coaster session on Wall Street that saw a strong rally in
the major benchmark indexes ending abruptly with a precipitous
drop.
Futures tied to the Dow Jones Industrial Average edged up 0.6%,
signaling that the gauge may open higher after the opening bell.
The day before, the blue-chips index gave up a 4.1% advance to
close 0.1% lower.
"A vacuum of data is leading to this volatility, rather than a
shift in sentiment," said Edward Park. deputy chief investment
officer at Brooks Macdonald. The shifting mood in oil markets is
also impacting sentiment among equity investors, he said, as
traders speculate about the outcome of a meeting between major
crude oil producers on Thursday.
European equities ticked lower, with the pan-continental Stoxx
Europe 600 dropping 0.8%. Fresh survey data on Wednesday showed
that the German economy is expected to contract 9.8% in the second
quarter due to the coronavirus pandemic and the containment
measures put in place by authorities. That would be the sharpest
decline recorded in Germany since at least 1970, and will probably
be more than twice as steep as the drop during the first quarter of
2009.
The indicators came on top of the news that European Union
finance ministers had suspended talks on an economic crisis
response on Wednesday morning, underscoring the deep differences
within the bloc over how to share the mounting costs of the health
crisis. Ministers had hoped to agree to a package of measures that
could have provided half a trillion euros worth of support for the
economy.
"There's disappointment," said Florian Hense, European economist
at Berenberg Bank. "The longer it takes for finance ministers and
leaders to come up with a solution, the weaker their ability to
sell it to their home audience. We're not talking about economics
any longer, but politics."
Any agreement reached would be a welcome signal for markets, Mr.
Hense said. Investors continued to pull out of Italian bonds, which
are considered riskier assets. The yield on 10-year Italian bonds
rose to 1.673%.
In a sign of investors' wavering risk appetite, the yield on the
10-year U.S. Treasury ticked up to 0.750%, from 0.735% Tuesday,
after declining earlier in the day.
In trying to assess the depth of the looming recession that will
be triggered by the coronavirus shutdown, some investors are
examining the support offered by the Federal Reserve, and how
quickly it will prove to be effective in bolstering economic
activity.
As well as slashing interest rates, the central bank announced
other aggressive measures in March, pledging to buy government
bonds, corporate-bond funds and municipal debt. It has boosted the
short-term cash markets and even arranged to lend directly to
companies.
"Bear markets tend to last longer than we think," said Gregory
Perdon, co-chief investment officer at Arbuthnot Latham. "Although
we have shock and awe with relaunching QE, we don't know that the
on-the-ground economic support is going to be there quickly."
In commodities, U.S. crude futures climbed 3.4% to $24.42 a
barrel. American Petroleum Institute data released late Tuesday
reportedly showed U.S. crude inventories rose by more than
expected. The prices are too low for U.S. producers, leading to a
significant slowdown in drilling activity, ING strategists said.
The Energy Information Administration's short-term energy outlook
forecasts that U.S. oil output in 2020 will decline by 470 million
barrels a day from the previous year, taking it down from a
previous forecast of 770 million barrels a day growth.
The U.S. death toll from the new coronavirus rose sharply, with
nearly 50% more people killed Tuesday than any previous day in the
epidemic, according to a Wall Street Journal analysis of data from
Johns Hopkins University. European countries with falling infection
rates began easing their restrictions, while some Asian leaders
called for extended lockdowns to fight the pandemic.
In Asia, Japan's Nikkei 225 closed 2.1% higher. Late Tuesday,
the government said it plans to pay households and businesses
directly as part of a nearly $1 trillion economic package. It could
subsequently use stimulus money to encourage consumer spending and
travel.
Investors are watching closely for when U.S. infections peak and
start to decline, and when shutdowns are lifted, according to
Kelvin Tay, regional chief investment officer at UBS Global Wealth
Management in Singapore. In time, he said, investor focus would
shift to 2021 corporate earnings, and how quickly economic activity
can recover.
Since the Federal Reserve last month made use of a range of
tools -- adopting "the entire playbook" it developed during the
2008 global financial crisis -- in quick succession, market
functioning has improved, Mr. Tay said. "The markets have exited
the panic-selling mode."
Later in the day, the Fed is scheduled disclose what was
discussed at its meetings in the first half of March, offering
fresh insights into policy makers' willingness to take additional
steps as the outlook deteriorates. Costco Wholesale will also
report March sales after the closing bell in New York, giving
investors a view on how the pandemic has affected the retailer's
operations.
Write to Anna Isaac at anna.isaac@wsj.com and Chong Koh Ping at
chong.kohping@wsj.com
(END) Dow Jones Newswires
April 08, 2020 07:52 ET (11:52 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.