Stocks jump on virus hopes, oil hit by OPEC+ delay

LONDON (Reuters) – World stock markets jumped on Monday, encouraged by a slowdown in coronavirus-related deaths and new cases, though a delay in talks between Saudi Arabia and Russia to cut supply sent oil tumbling again.

Equity investors were encouraged as the death toll from the virus slowed across major European nations including France and Italy.

London’s FTSE raced up 2%, indexes in Paris and Milan rose 3% and Germany’s DAX gained more than 4% after Japan’s Nikkei finished with similar gains overnight. [.EU][.T]

There was plenty of news to demonstrate just how brutal the virus has been: eye-popping plunges in car sales and air travel in Europe, Britain’s prime minister being hospitalised, and Japan preparing to declare a state of emergency. But the markets appeared hopeful.

Wall Street S&P 500 emini futures were up almost 4%, close to their upper limit too, bouyed by comments from U.S. President Donald Trump that his country was also seeing a “levelling off” of the crisis.

“What is driving the market is the evidence that the number of new cases has started to turn the corner,” said Rabobank’s Head of Macro Strategy Elwin de Groot.

As well as a slowdown in deaths in Italy, he said, improvements were starting to become visible in Spain and even in the United States there had been a little bit of a let-up.

“When you see that happening you can start gauging when lockdowns can start to be gradually lifted. That gives a little bit more visibility and that is vital,” he added, although he stressed there were still huge uncertainties and risks.

As has been the pattern for most of the year, commodity markets saw the day’s other big moves.

Brent crude fell as much as $4 after Saudi Arabia and Russia, who have been at loggerheads this year over production, pushed back the planned start of a meeting of the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, until Thursday.[O/R]

OPEC+ is working on a deal to cut oil production by about 10% of world supply, or 10 million barrels per day (bpd), in what member states expect to be an unprecedented global effort.

The countries are “very, very close” to a deal on cuts, one of Russia’s top oil negotiators, Kirill Dmitriev, who heads the nation’s wealth fund, told CNBC.

But Rystad Energy’s head of oil markets Bjornar Tonhaugen said even if the group agreed to cut up to 15 million bpd, “it will only be enough to scratch the surface of the more than 23 million bpd supply overhang predicted for April 2020.”

EMERGENCY CALLS

In currency markets, the yen fell 0.6% to 109.14 against the dollar and weakened against other major currencies as Japan’s Prime Minister Shinzo Abe said the government would declare a state of emergency as early as Tuesday to curb a spike in coronavirus infections.

The dollar barely budged against the euro but the pound recovered having dipped 0.4% after British Prime Minister Boris Johnson was admitted to hospital for tests as he was still suffering symptoms of the coronavirus.

Yields on safe-haven German government bonds crept higher in fixed income markets too, reflecting the slightly brighter tone in world markets despite some painful data.

Investor morale in the euro zone fell to an all-time low in April and the currency bloc’s economy is now in deep recession due to the coronavirus, which is “holding the world economy in a stranglehold”, a Sentix survey showed.

Orders for German-made goods had already dropped 1.4% in February, German data showed. British car sales slumped 40% last month and Norweigen Air’s traffic plummeted 60%.

“Never before has the assessment of the current situation collapsed so sharply in all regions of the world within one month,” Sentix managing director Patrick Hussy said.

“The situation is … much worse than in 2009,” Hussy said. “Economic forecasts to date underestimate the shrinking process. The recession will go much deeper and longer.”

CRUCIAL TEST

In Asia, stocks had also proven bullish. Australia’s benchmark index rose 4.33%, Japan’s Nikkei added 4.24% after a slow start, while South Korea’s KOSPI index climbed 3.85%. Hong Kong’s Hang Seng index was 2.18% higher.

That sent MSCI’s broadest index of Asian shares outside of Japan up 2%, on track for its best performance in more than a week.

Markets in mainland China were closed for a public holiday.

Worryingly, the number of new coronavirus cases jumped in China on Sunday, while the number of asymptomatic cases surged too as Beijing continued to struggle to extinguish the outbreak despite drastic containment efforts.

“Focus in markets will now turn to the path out of lockdown and to what extent containment measures can be lifted without risking a second wave of infections,” National Australia Bank analyst Tapas Strickland wrote in a note.

“Key to a strong rebound in China will be the ongoing lifting of containment measures, with Wuhan – the epicentre of the outbreak – set to lift containment measures on April 8.”

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