US index futures and European stocks rallied alongside Asian shares on Tuesday as investors rediscovered some appetite for risk after global equities hit their lowest level since 2016. The dollar slumped following a 10-day winning streak, and Treasuries slipped.
Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all jumped more than 5% to hit their upper trading curbs. If the moves carry through to the underlying gauges it will be the third week running that the S&P 500 has rebounded following a Monday drop. The Stoxx Europe 600 Index also surged, led by insurers and energy companies, even as data began to show the extent of economic damage to the region from the coronavirus pandemic. Benchmarks in Tokyo, Hong Kong and Sydney all climbed at least 3% while Korean shares soared 9% as the government announced measures to stabilise financial markets.
The dollar slumped against developed and emerging currencies alike, in a tentative sign of reduced stress after the greenback’s steepest appreciation since the global financial crisis and longest winning streak since 2012. European bonds tracked Treasuries lower.
About $26 trillion has evaporated from equity markets since mid-February, and investors have been left surveying the wreckage and the chances of a lasting rebound. On the one hand, Wall Street has begun to argue that liquidations are nearing an end with real-money investors like pension funds ready to step in, and there are signs of improvement in some of world’s regions that were hardest-hit by the virus. On the other, the number of infections globally continues to accelerate and many of the largest economies are grinding to a halt.
Tuesday’s gain in risk assets follows an unprecedented move by the Federal Reserve to backstop large swaths of the US financial system. Actions on the fiscal side remain pending, with Congress so far unable to agree a compromise spending deal.
“Sentiment has improved, but to call it a turning point is too strong a word for now,” said James McCormick, global head of desk strategy at NatWest Markets. “It is more of a tug-of-war. Policy bazooka is in place, but will be fighting against very weak data and still worrying trends on Covid-19 data.”
Elsewhere, emerging-market stocks jumped alongside their currencies. Gold extended recent a recent surge and industrial metals rallied.
Futures on the S&P 500 Index increased 5.1% in London. The Stoxx Europe 600 Index surged 5.3%. The MSCI Asia Pacific Index advanced 4.8%.
The Bloomberg Dollar Spot Index sank 1.4%. The euro increased 1.4% to $1.0873. The British pound jumped 2.1% to $1.1782. The Japanese yen advanced 0.6% to 110.54 per dollar. The yield on 10-year Treasuries climbed two basis points to 0.80%.
Gold advanced 2.7% to $1,595.40 an ounce. West Texas Intermediate crude climbed 5.6% to $24.67 a barrel.