LONDON / TOKYO (Reuters) — On Wednesday, oil prices and global stocks crash as fears about a second wave of coronavirus infections hit financial markets.
Investors have also had to deal with increased U.S.-China trade disputes due to the pandemic-driven shakeout of assets of recent months.
MSCI (NYSE: MSCI)’s global share index fell 0.3%. Pan-European STOXX 600 index slipped 1.6%. Banks became the drag after many negative reports.
Deutsche Bank (DE: DBKGn) shares fell 4.4 percent after it was reported that top managers would waive one month of fixed pay in an effort to cut costs. While fellow German lender Commerzbank (DE: CBKG) and Dutch ABN Amro slumped after first-quarter losses.
According to Francois Savary, chief investment officer at Swiss wealth manager Prime Partners, earning season is essentially behind us and we’ve reached phase two of COVID-19 as economic deconfinement continues, generating a lot of volatility on a regular basis that weighs on stocks. This is not the start of a new correction. Markets went too far, too fast and this is the consolidation.
MSCI’s broadest Asia-Pacific share index outside Japan wiped out an early decline and rose 0.3%. U.S. stock shares, which are S&P 500 e-minis, reversed earlier gains to 0.2%.
Oil markets, which slumped in 2020 thanks to a combo of demand worsening and supply glut, lost ground.
Treasury yields also got to a lower level with caution before U.S. Federal Reserve Chairman Jerome Powell’s speech and the anticipation that the States could one day introduce negative interest rates.
Leading U.S. infectious disease expert Anthony Fauci cautioned lawmakers recently that lifting lockdowns too early could lead to more Covid19 outbreaks that killed 80 thousand Americans and ravaged the economy.
Fauci’s remarks rocked Wall Street stocks overnight, reflecting a volatile market sentiment that has swung from hope about any global easing of lockdowns to concern over a fresh increase of virus cases.
The atmosphere went further south by a law initiative by leading U.S. Republican senator that would allow President Donald Trump to place sanctions on China should they refuse to provide a full account of incidents leading to coronavirus outbreak.
Stock Markets bounced back quite a bit in the last few weeks as coronavirus spread accelerated in several countries in Asia and Europe, while areas of the U.S. economy and Europe started to reopen following weeks of lockdowns. Some investors, however, fear that reopening factories and shops is a premature move.
The New Zealand dollar slumped to a six-month low after the country’s central bank doubled its quantitative easing program and said it asked commercial banks to be ready for year-end negative interest rates.
As traders braced for Powell’s speech, the U.S. dollar was mending losses, which will cover economic problems and can provide tips on whether negative rates are a possible policy option.
The 10-year Treasury notes benchmark return stood at 0.6606 percent. The two-year return was 0.1629 percent, above a record low of 0.1050 percent on Friday.
The German 10-year government bond yield in Europe, which had risen around 8 basis points since May 4, changed direction and fell around 3 bps as demand for safe debt increased.
The Italian 10-year bond yield, the proxy for riskier peripheral European bonds, rose 2 bps.
Trump again pushed the Fed to adopt negative rates on Tuesday, a hot topic in financial markets since last week when U.S. money markets started pricing below zero.
Oil futures fell as fears overcame hope that output cuts would stop prices from slumping lower. U.S. crude fell 1.6% to $25.36 a barrel. Brent crude LCOc1 fell 2.6% to $29.19 per barrel.