Stocks spike as central banks throw kitchen sink at virus

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World stock markets spiked Thursday as massive central bank action finally got the attention of investors who had earlier shrugged off dizzying amounts of liquidity pouring into the financial system to fight the coronavirus impact.

The Bank of England came back with its second rate cut within days and unleashed its “biggest ever ever one-off round of asset purchases”, said Kallum Pickering, senior economist at Berenberg.

The Bank threw “the kitchen sink” at the coronavirus, said Craig Erlam, senior market analyst at OANDA, a day after the European Central Bank fired its most impressive monetary salvo yet in a bid to prevent a credit crunch in a stuttering eurozone economy.

The Federal Reserve also injected more funds into money markets Thursday.

The central bank action, combined with fiscal measures across the globe, helped stock market turn a corner after earlier weakness, with Wall Street more than one percent higher in midday trading, and key European equity markets packing even stronger gains.

– What if it’s not enough? –

The ECB’s massive action, meanwhile, undermined the euro against the dollar, which got a shot in the arm from investors buying into safety, even prompting speculation of possible Fed intervention to stem its rise.

The biggest impact of the smorgasbord of monetary efforts was on global bond markets, where yields fell on expectations that central banks will now be gobbling up any longterm debt that governments, and large corporations, are willing to issue.

But voices warning of the limits of monetary policy would not be silenced.

“What if liquidity support is not enough?” asked Holger Schmieding, at Berenberg, wondering whether governments might be tempted to take direct stakes in companies, if only to save them from hostile takeover — a policy shift he called “a potential risk”.

Thursday’s relief across markets was tempered by the fear of a terrible economic impact still ahead, analysts said.

“Markets are in risk-averse mode,” said Christopher Dembik, head of economic research at Saxo Banque in Paris.

– ‘Singular size’ –

Investors were now expecting a global recession “of a singular size”, he told AFP, adding that solace was nowhere to be found “even if enormous means are being deployed”.

But in the short term, those means did provide some relief to frayed investor nerves.

Investors saw “the European Central Bank calm markets, at least for now, with their stimulus package”, Scope Markets analyst James Hughes told AFP.

The so-called Pandemic Emergency Purchase Programme came six days after the ECB unveiled a big-bank stimulus package that failed to calm nervous markets and had piled pressure on the bank to open the cash floodgates.

– ‘Bazooka’ –

After announcing the move, ECB boss Christine Lagarde tweeted that “extraordinary times require extraordinary action”. analyst Neil Wilson said the ECB action “looks more like a bazooka than anything they’ve done thus far”.

Earlier Thursday, Asia stocks initially climbed on the ECB’s midnight announcement but soon tumbled as investors contemplated months of economic hardship.

Oil prices rebounded almost as spectacularly as they had dropped on Wednesday when US benchmark WTI lost around a quarter of its value.

Oil markets have been hammered by collapsing demand as the virus prompts sweeping travel restrictions and business closures, compounding a price war between key producers Saudi Arabia and Russia.

– Key figures around 1640 GMT –

London – FTSE 100: UP 1.8 percent at 5,173.51 points (close)

Frankfurt – DAX 30: UP 2.0 percent at 8,610.43 (close)

Paris – CAC 40: UP 2.9 percent 3,855.50 (close)

EURO STOXX 50: UP 2.9 percent at 2,454.08

New York – Dow: UP 1.3 percent at 20,166.84

Tokyo – Nikkei 225: DOWN 1.0 percent at 16,552.83 (close)

Hong Kong – Hang Seng: DOWN 3.3 percent at 22,548.65

Shanghai – Composite: DOWN 1.4 percent at 2,691.71

Brent North Sea crude: UP 9.2 percent at $27.17 per barrel

West Texas Intermediate: UP 20.0 percent at $25.00

Dollar/yen: UP at 110.19 yen from 109.09 yen at 2100 GMT

Euro/dollar: DOWN at $1.0676 from $1.0991

Pound/dollar: UP at $1.1635 from $1.1629

Euro/pound: DOWN at 91.72 pence from 93.97