Wall Street bounces back from sharp sell-off

US stocks rebounded on Friday from a sharp global sell-off sparked by renewed fears over the impact of the coronavirus pandemic.

The S&P 500 rose more than 2.5 per cent when Wall Street opened for trading, following broad gains in Europe. The US benchmark index had fallen 5.9 per cent a day earlier.

The Stoxx Europe 600 quickly recovered from opening losses to trade up 1.4 per cent. London’s FTSE 100 also staged a turnround to gain 1.5 per cent, after falling sharply at the market open following the release of figures showing the UK economy’s steepest monthly contraction on record.

The resumption of a three-month long rally in US and European equities comes after the worst one-day falls since March on Thursday. The tech-heavy Nasdaq Composite fell 5.3 per cent, retreating from a record high, and the European benchmark fell more than 4 per cent.

Investors were rattled by the Federal Reserve’s dire assessment of US economic prospects and rising Covid-19 cases in states in the country’s west and south after easing lockdowns.

Robert Carnell, Asia-Pacific head of research at ING, said a surge in coronavirus cases in the US had provided a reality check for markets, which have rallied in recent weeks on the expectation of a V-shaped recovery in economic activity.

Other analysts said the stock market sell-off was driven primarily by investors turning away from equities since they had become overvalued.

“Yesterday’s moves may have been as much about some investors deciding to take some money off the table simply due to the recent stellar performance of equities and this snowballing over the course of the day,” analysts at Rabobank said in a note on Friday.

But Sebastian Raedler, strategist at Bank of America, estimated that European stocks could gain a further 20 per cent by November as coronavirus restrictions eased. “The violent pullback in European equities this week raises concerns that the 30 per cent rally since mid-March could prove unsustainable against the backdrop of a still-weak economy,” he said.

“However, we think the main planks of the positive thesis are still in place: the virus spread in the main euro area economies continues to fade and governments are lifting their lockdowns, which is set to lead to a pick-up in economic activity from depressed levels.”

In Asia, Tokyo’s benchmark Topix index dropped 1.2 per cent, while South Korea’s Kospi shed 2 per cent and Hong Kong’s Hang Seng was 1 per cent lower.

The yield on US 10-year Treasuries rose to 0.705 per cent, which moves inversely to bond prices, after slipping by as much as 0.3 percentage points this week.

The US dollar made mild losses against a basket of major currencies, to extend a recent sell-off after it managed to claw back some of its losses on Thursday. The flight from equities a day earlier had given upwards momentum to haven currencies such as the Japanese yen, said analysts at MUFG.

Oil prices edged higher but they were on track to record a decline this week. Brent, the international marker, gained 0.9 per cent to $38.91 a barrel, after tumbling 7.6 per cent on Thursday after US data showed crude inventories rose to a record high. West Texas Intermediate, the US benchmark, rose 0.6 per cent to $36.47.

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