(A look at the day ahead from markets correspondent Karin Strohecker. The views expressed are her own.)
LONDON, March 10 (Reuters) - It was on March 9, 2009 - exactly 11 years ago - that the MSCI World index hit bottom, emerging from the great crisis selloff. Yesterday was the reverse, and despite some signs of stabilization today, it does not seem that we are at the bottom of the market yet.
Still, after Mondays moves the biggest oil price drop since 1991, the worst Wall Street day since 2008, a 3% yen gain, European shares in bear territory and U.S. 10-year yields near 0.3% -- markets had to stabilize somewhat. Futures are implying a 3% bounce on Wall Street. European shares are looking at opening 2% or so higher, and in Asia the Nikkei rose almost 1% while Chinese equities gained more than 1%. Even oil has recovered 7% and U.S. Treasury yields doubled to 0.7%. The dollar index is up half a percent, the yen down almost 2% and the euro lower by 0.7%.
Other than some bargain hunting, the reason is expectations of stimulus. U.S. President Donald Trump pledged "major" steps, including a cut to payroll tax, and the Fed is expected to trim interest rates again JPMorgan analysts predict a cut to 0% this month. The White House will also meet with bank executives this week in a sign the U.S. government is preparing to roll out more measures to ease their pain.
On the other side of the world, Japanese PM Shinzo Abe said the government will work with the Bank of Japan to stabilize markets. BOJ Governor Haruhiko Kuroda raised the likelihood of monetary easing at next week's meeting. Market thinking is that the BOJ might pledge next week to buy ETFs at a faster pace than the current commitment to do so by roughly 6 trillion yen ($58.12 billion) per year. The Australian government is also set to announce a fiscal stimulus package this week and New Zealands central bank governor said negative interest rates and asset purchases are all in its tool kit.
The coronavirus news isnt great, though. The spread of the illness in China has slowed, but its proliferating elsewhere. All of Italy is locked down and the global death toll is almost 4,000. The plunge in oil prices may be welcome for importing nations, but it is also complicating the lives of central bankers battling disinflation. From Australia to China, we have had more dire readings, and while these are already outdated they are putting pressure on policymakers producer prices are in deflation. Business and confidence data out of Australia have been terrible.
The knock-on effects are being felt by companies from Italian luxury goods to airlines. Markets may be more cheerful today, but keep an eye on credit spreads and money markets the panic isnt over. All it needs for the mood to reverse is a spike in cases and trading disruptions in London, New York or other major financial centers. Energy companies are not out of the woods, either Deutsche Bank points out that U.S. high-yield spreads widened 104 bps yesterday while high-yield energy spreads blew out 333 bps to 1,432 bps, approaching their 2016 peaks of 1,984 bps.
In European corporate news, Norwegian Air halted flights to Italy, Qantas cut international capacity and Deutsche Bank said an Frankfurt-based employee contracted the virus. BHP said it was in "good shape" to act if the coronavirus disruption brought M&A openings. Infineon was seen jumping 7% after U.S. officials said its Cypress Semi deal posed no national security concerns.
In a headline that evokes the good old times of the (late?) bull market, Novartis said it had launched a program to buy back up to 10% of shares. Some of the moves are likely to be outsized given the broad recovery in stock markets. (Reporting by Karin Strohecker, editing by Larry King)