market Archives - Devine Accountants

World market emerge from rout as stimulus hopes calm panic

Wall Street stocks bounced in opening trade today, recovering some of the losses from yesterday’s rout, in anticipation of stimulus measures to address the economic hit from coronavirus. 

About 15 minutes into trading, the Dow Jones had gained 2.7% after losing more than 2,000 points yesterday in its worst session since 2008. Meanwhile, the broad-based S&P 500 surged 2.5%, while the tech-rich Nasdaq Composite Index advanced 2.6%.

After bouncing back in earlier trade following yesterday’s mauling, European markets had pared most of their earlier gains this afternoon.

London’s FTSE index was up 0.2% by 3pm, while the Paris CAC dipped 0.3% and the Frankfurt DAX was flat.

Dublin’s ISEQ index also pared back its earlier gains to stand 0.2% higher with shares in Bank of Ireland up 5.3% and AIB gaining 1.9%.

Asian stocks had also bounced today on hopes that global policymakers would introduce co-ordinated stimulus to cushion the economic impact of a coronavirus outbreak. 

Oil similarly clawed back some of its massive losses from yesterday, rallying 7% and offering hope that markets had found a floor, although sentiment was still fragile a day after prices plunged. 

Supporting the mood was a pledge from President Donald Trump to take “major” steps to protect the economy and float the idea of a payroll tax cut with congressional Republicans. 

The gains in the US and European futures come on the back of a 1.36% rise in MSCI’s broadest index of Asia-Pacific shares outside Japan, having dropped more than 5% on Monday. 

But despite the bounce, analysts warned it was too early to call a trough in equity markets.

Japan’s Nikkei index ended the day up 0.85%, after touching its lowest level since April 2017 earlier in the day.

The Australian market closed up 3.1% as some went hunting for bargains in beaten down stocks. 

China’s benchmark Shanghai Composite Index was trading up 1.7% as new domestic coronavirus cases tumbled and President Xi Jinping’s visit to the epicentre of the epidemic lifted sentiment. Shares in Hong Kong closed 1.4% higher.

Headlines on the coronavirus, however, were still no brighter with Italy ordering everyone across the country not to move around other than for work and emergencies, while banning all public gatherings. 

“Although uncertainty is very high, we now expect similar restrictions will be put in place across Europe in the coming weeks,” warned economists at JPMorgan. 

Such has been the conflagration of market wealth that analysts assumed policy makers would have to react aggressively to prevent a self-fulfilling economic crisis. 

The US Federal Reserve yesterday sharply stepped up the size of its fund injections into markets to head off stress. 

Having delivered an emergency rate cut only last week, investors are fully pricing an easing of at least 75 basis points at the next Fed meeting on March 18, while a cut to near zero was now seen as likely by April. 

Britain’s finance minister is due to deliver his annual budget tomorrow and there is much talk of coordinated stimulus with the Bank of England. 

The European Central Bank meets on Thursday and will be under intense pressure to act, even though rates there are already deeply negative. 

“Italy’s decision to quarantine the whole country will affect 15% of Europe’s GDP, putting thee ECB at the forefront of efforts to cushion the escalating economic deterioration,” said Brian Martin, a senior international economist at ANZ.

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Banks and property related stocks slump in Dublin trade

Shares on the Dublin market were lower today after Sinn Féin secured the highest percentage of the first preference vote in the weekend election. 

The ISEQ index closed down 1.2%.

The banks were all weaker with AIB end the day 5.4% lower, while Bank of Ireland sank 8.3% and Permanent TSB tumbled 11%.

Investors fear a negative impact from Sinn Fein’s policies, which include an end to tax breaks for banks.

“Sinn Fein’s manifesto contained a range of more radical policies on banking and housing,” Davy Research analyst Conall MacCoille said in a note to clients.

Property related stocks also took a hit with shares in housebuilder Glenveagh Properties dropping 10.9%, while I-RES REIT slumped 8.7%, Hibernia REIT lost 7% and Cairn Homes was down 8.6%.

Sinn Féin’s housing policies include abolishing the “Help-to-Buy” scheme and imposing a rent freeze.

With negotiations to form a coalition government taking place over the next few weeks, Conall MacCoille said however that Sinn Féin may end up compromising on some of these policies.

In a note, Goodbody Stockbrokers also said some of the more extreme anti-bank rhetoric in Sinn Féin’s manifesto is unlikely to see the light of day.

The party’s manifesto included such measures as retaining the State’s 71% interest in AIB and ensuring that decisions made at board level in the banks are made in the interest of borrowers and not shareholders. 

However, the policies likely to be most in focus in the days ahead include ending the corporation tax break for banks, increasing the bank levy from €150m to €200m and giving the Central Bank powers to cap mortgage rates and instruct the banks to lower rates, the stockbrokers added.

The stockbrokers also cautioned that share prices in the banking sector are likely to struggle in the days ahead.

Speaking on RTÉ’s Morning Ireland, KBC Bank Ireland’s chief economist Austin Hughes said the election result may weigh on sentiment in the short-term, though perhaps not by as much as it would in previous years.

“In general markets, businesses and consumers don’t like uncertainty but in recent years uncertainty has become a central feature of the global landscape,” he said.

“Whether you’re talking about political uncertainty across Europe that saw the rise of very radical parties and promises, or closer to home uncertainty around Brexit, by and large markets, businesses and consumers have tended to weather that problem.”

He said uncertainty was now seen as “part of the new normal”, with people tending to get on with whatever they were doing.

He said financial markets are likely to take a wait-and-see approach on Irish-linked investments, with the nature of the next government key to what will ultimately happen to stocks and bonds.

“They’ll wait to see what the scale and shape of fiscal policy will be like,” Mr Hughes said.

In recent months both the European Central Bank and the International Monetary Fund have called for some loosening of fiscal policies, which means a new government may have the flexibility to increase spending in certain areas.

Mr Hughes said that this could ultimately benefit Ireland’s image in the eyes of international markets.

“If they actually can make progress and deal in a fundamental way with problems like housing and health that impinge on the economy and broader Irish society that would be something that markets, consumers and businesses would be delighted about,” he said.

The risk, however, was that multiple parties compromise around a budget policy that gives everybody something small – but does not do enough to tackle the major issues in any meaningful way.

“We actually have quite an opportunity now because of the way the world economy is to address some of these issues with a coherent and consistent fiscal policy, so it’s really a case of whether the parties can be adult enough to actually focus on the measures rather than on their support base,” he said.

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