Wall Street staged a comeback on Thursday, as a surge in shares of hard-hit US banks offset a slide in the value of large industrial groups after new data on US unemployment claims.
The S&P 500 closed 1.2 per cent higher, after dropping roughly the same amount earlier in the day, while the tech-heavy Nasdaq Composite climbed 0.9 per cent.
Shares in Wells Fargo and Capital One, two companies in the financial sector that had suffered heavy losses this year, rose more than 6 per cent. Other banks, including JPMorgan Chase and Bank of America, also rose more than 3 per cent.
But those gains were offset by declines at United Airlines, General Electric and Lockheed Martin, which weighed on the benchmark US stock index. Trading remained volatile a day after Jay Powell, chairman of the Federal Reserve, warned that a US “recovery may take some time to gather momentum”.
Figures released by the US labour department on Thursday showed 2.98m Americans filed for unemployment benefits for the first time last week, taking the total to 36m in eight weeks.
“Hard on the heels of . . . Powell’s downbeat comments on the US economy come initial jobless claims that are worse than expectations,” said Neil Birrell, chief investment officer at Premier Miton. “Equities have been struggling since Powell spoke and there is nothing in these numbers to provide respite.”
Mr Powell’s bleak prognosis was echoed by Bank of England governor Andrew Bailey, who said during a Financial Times digital conference that there would be “some scarring” in the UK economy from the crisis, although it is uncertain how much.
Commitments by the Fed to lend additional support to financial markets if warranted has helped to ease investors’ concerns somewhat, however, and shore up risk assets.
“The Fed has come in so aggressively and so forcefully that the market is expecting that it will go in wherever it is needed,” said Quincy Krosby, chief market strategist for Prudential Financial.
European and Asian bourses closed lower as hopes for a quick economic recovery from the coronavirus crisis faded. London’s FTSE 100 tumbled 2.8 per cent, while Frankfurt’s Xetra Dax fell 2 per cent and the region-wide Stoxx Europe 600 dropped 2.2 per cent.
Traders have also had to contend with a re-emergence of tensions between the US and China. The US government’s main pension fund this week halted a plan to invest in Chinese stocks after officials cited the risk of sanctions over China’s handling of coronavirus. President Donald Trump, meanwhile, suggested in a television interview on Thursday that he could “cut off the whole relationship” with China.
“Given the political incentive, Mr Trump may not be bluffing when he threatens to impose more tariffs as the ‘ultimate way’ to make China pay for the cost on America of the coronavirus outbreak,” said Chi Lo, Greater China economist at BNP Paribas Asset Management.
The US dollar and Treasuries have strengthened as market sentiment has turned sour.
“The Fed poured cold water on the notion of a pivot towards negative interest rate policy . . .[and] the market has started to rethink the risks surrounding US-China trade tensions,” said Mark McCormick, global head of FX Strategy at TD Securities. “This backdrop reinforces our bullish USD stance.”
Hong Kong’s benchmark Hang Seng fell 1.5 per cent, while Japan’s Topix index closed down 1.9 per cent. Australia’s S&P/ASX 200 shed 1.7 per cent, after the announcement that the country’s unemployment rate had jumped to 6.2 per cent, the highest level in five years.
South Korea’s Kospi index dropped 0.8 per cent after at least 120 people were confirmed as infected with Covid-19 this week in an outbreak linked to a nightlife district in Seoul.
Oil prices rose after the International Energy Agency predicted that the drop in demand for crude this year would not be as severe as initially thought and supply is expected to drop to a nine-year low.
Brent crude, the international benchmark, was up 6.6 per cent to $31.13 a barrel, while West Texas Intermediate, the US marker, rose 9 per cent to $27.56 a barrel.
Additional reporting by Daniel Shane in Hong Kong