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 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 by a new 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 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%.
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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 changed Wednesday rules around how banks account for their supersafe assets, easing capital constraints for lenders. The steps were 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. 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 elsewhere. 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.
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 Wednesday. Still, that represented a rise from 4,100 new cases 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.
The Stoxx Europe 600 index was largely flat Thursday. Asian stock markets ended the day mixed. 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.
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