U.S. Shares Open Higher, but Oil Slips
27 February 2020 - 2:01AM
Dow Jones News
By Anna Isaac and Chong Koh Ping
U.S. stocks bounced back a bit even as oil prices slipped
Wednesday with investors struggling to assess the impact of the
fast-spreading coronavirus and its economic fallout.
The Dow Jones Industrial Average ticked 0.4% higher in early New
York trading. The gauge of blue-chip stocks fell nearly 900 points
on Tuesday to end at its lowest level since October after U.S.
health officials said they expect a wider spread of the coronavirus
and are preparing for a potential pandemic.
"This is a time of peak uncertainty for coronavirus," said
Edward Park, deputy chief investment officer at Brooks Macdonald.
"We don't yet know the size of how much it's spread or the
mortality rate. That's what markets are reacting to, peak
uncertainty, rather than facts."
Investors' anxiety was also reflected in bond markets, where the
yield on the U.S. 10-year Treasury dipped to 1.312% Wednesday
before recovering to 1.365%. On Tuesday, it had settled at an
all-time low of 1.328% as fund managers sought the safety of
government bonds, extending a decadeslong rally.
U.S. yields, which fall as bond prices rise, have come under
pressure in recent days in part because of a growing expectation
among investors that the Federal Reserve may cut interest rates at
least two times later this year. But Federal Reserve Bank of Dallas
President Robert Kaplan told The Wall Street Journal Tuesday that
events were still too fluid around the coronavirus outbreak for the
central bank to cut short-term interest rates.
"There's a big question over how efficient it might be to have
more easing from the Fed," Mr. Park said. "More fiscal stimulus
might be needed to stimulate growth in the short term."
Meanwhile, the recent surge in volatility in the U.S. stock
market showed few signs of abating. The Cboe Volatility Index, a
closely watched measure of market turbulence known as VIX, remained
elevated on Wednesday at 25.8.
"Markets are reacting to snippets of news or even a few hours of
silence, " said Paul O'Connor, head of the U.K.-based multiasset
team at Janus Henderson Investors. "The spike up in volatility this
week reflects the increased uncertainty over the economic outlook.
Investors are deleveraging."
The S&P 500 and Nasdaq Composite Index rose about 0.5% in
early New York trading. Earlier, regional equity indexes across
most of Europe pared back trading losses through the day. The
pan-continental Stoxx Europe 600 dropped 0.2%. The U.K.'s equity
benchmark FTSE 100 index shed 0.3% after having briefly entered
correction territory earlier in the day when it dropped over 10%
from its Jan. 21 high.
"Investors do not want to catch this falling knife," said James
Athey, a senior investment manager at Aberdeen Standard
Investments. "The speed with which equities are declining here is
something investors find very troubling. It's hard to see people
willing to step in and buy."
Brent crude, the benchmark for global oil prices, fell 1.4% to
$53.53 a barrel, and U.S. oil prices dropped to a 12-month low.
Industrial metals including copper also waned.
In Asia, markets closed lower. Japan's Nikkei 225 index shed
0.8% to reach its lowest level since October. Australia's
S&P/ASX 200 dropped 2.3% and Korea's Kospi retreated 1.3%.
"The market is pricing in a significant slowdown in global
growth and corporate earnings," said Ong Zi Yang, senior macro
analyst at FSMOne.com in Singapore. "It is hard to quantify the
economic impact now but there will definitely be a slowdown."
Deaths and confirmed cases of the coronavirus have continued to
climb outside China -- notably in Italy, Iran, Japan and South
Korea. Concerns among investors that the virus will spread further,
disrupting the global economy, have triggered two sharp consecutive
stock selloffs this week.
Many European and Asian benchmarks, including those in Germany,
Japan, and South Korea are now solidly in negative territory for
the year. Germany's DAX is down 4% year to date, while Hong Kong's
Hang Seng Index and the Kospi in Seoul have both declined more than
5%, according to FactSet.
"This is a classic case of risk aversion," said Kelvin Tay,
regional chief investment officer at UBS Global Wealth Management
in Singapore, who added that markets were likely to remain
volatile.
In currencies, the Australian dollar fell to its lowest level
against the U.S. dollar since March 2009. Meanwhile, the ICE U.S.
dollar index was up 0.2% Wednesday, taking its gains against other
major currencies so far this year to 2.9%.
The British pound fell 0.6% against the dollar amid concerns
about the government's mandate for trade talks with the European
Union, which is due to be made public Thursday.
Salesforce.com fell 1.2% in offhours trading after the company
said its Co-Chief Executive Keith Block would step down just 18
months after taking the job.
Write to Anna Isaac at anna.isaac@wsj.com and Chong Koh Ping at
chong.kohping@wsj.com
(END) Dow Jones Newswires
February 26, 2020 09:46 ET (14:46 GMT)
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