Global Markets Steadier After Two Days of Oil-Driven Turbulence -- Update

By Avantika Chilkoti and Joanne Chiu 

Global stocks recovered ground Wednesday, while crude prices briefly dropped to multidecade lows before oil markets calmed.

Futures linked to the S&P 500 advanced 1.4%, suggesting U.S. shares could rally on Wednesday. The benchmark Stoxx Europe 600 index climbed almost 1.2%. In Asia, Japan's Nikkei 225 closed 0.7% lower, while benchmarks in Hong Kong, South Korea and Shanghai ended higher.

"The psychology is 'buy on the dip' and that's what's fueling this bear-market rally," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham. Some fund managers only have experience investing in the prolonged bull market of the past decade, and have grown to expect a quick rebound, he said.

"The disappointment when that wall of unemployment does not dissipate quickly will be a rude awakening for risk assets, especially the equity market," Mr. Perdon said.

Investors are looking to corporate earnings to gauge the health of U.S. businesses as a broad swath of blue-chip companies report their results.

Ahead of the opening bell, shares in Snap soared almost 20%. The social-media company reported a surge in the number of users as people who are homebound turned to its chat app for communicating with friends and family.

Expedia climbed over 4% in offhours trading after The Wall Street Journal reported the company is in advanced talks to sell a stake to private-equity firms as widespread travel bans hit the online-booking company's business.

Shares in Netflix ticked down 3.2% in offhours trading. The streaming giant on Tuesday evening said it ended the first quarter with nearly 16 million new subscribers.

In commodities, Brent crude, the global gauge for oil, was almost flat at $19.30 a barrel, after briefly plunging earlier in the day to levels last seen in 1999. The most actively traded U.S. benchmark for crude ticked down 1.6% to about $11.41 a barrel, following its lowest close in 21 years.

The ministers of major oil-producing nations didn't reach any decisions on starting production cuts as soon as possible following an informal call on Tuesday, according to Warren Patterson, head of commodities strategy at ING. Meanwhile, forecasts suggest that the Energy Information Administration's data on Wednesday may show that the increase in U.S. crude-oil inventories exceeded 10 million barrels for the fourth consecutive week.

The Trump administration is considering offering federal stimulus funds to embattled oil-and-gas producers in exchange for government ownership stakes in the companies or their crude reserves, The Wall Street Journal reported. But the plan faces long odds given likely opposition from congressional Democrats to using stimulus funding for the oil industry. Separately, Texas regulators on Tuesday deferred a decision on whether to make operators curtail production for the first time since the 1970s.

Some investors questioned how effective support from the U.S. government would be in shielding oil producers, or propping up the price of energy stocks.

"It's not realistic to expect there won't be any casualties from this type of move in the oil price," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management. "If you do see government intervention, the pressure on corporates to avoid dividends and buybacks for a long period of time will be very strong."

The yield on the 10-year Treasury note inched up to 0.586%, from 0.571% Tuesday, in a sign that risk appetite may be returning.

In Europe, investors continued to pull assets out of government bonds from the periphery of the eurozone. Concern has mounted over recent days that a key meeting of European leaders on Thursday is unlikely to result in agreement on measures like a common debt-issuance program, which would have allowed richer nations share in the cost of shielding struggling economies.

"We would call it a defining moment for the eurozone project," said Brian O'Reilly, head of market strategy for Mediolanum International Funds. "This is a crisis that hit all nations equally: it is not that any nation did anything to bring this on itself, unlike the run-up of debt in Spain and Italy in the eurozone debt crisis."

The yield on 10-year Greek bonds climbed to 2.604%, from 2.434% Tuesday, and to 1.109% on Spanish bonds, from 1.022% Tuesday.

Confidence is likely to remain fragile while analysts and investors are still slashing profit forecasts for 2020, according to Ken Peng, head of Asia investment strategy at Citi Private Bank. He expects global earnings to fall by about 50% this year, but consensus forecasts are still far from this figure. "The markets will have more confidence, and more sustainably rally, once this revision momentum slows down," he said.

Fresh outbreaks in Asia are a warning that secondary waves of infection -- and intermittent lockdowns -- could follow initial successes, a pattern likely to continue absent a medical breakthrough, according to Min Lan Tan, Asia-Pacific head of the chief investment office at UBS Global Wealth Management.

"Proper economic functioning is probably going to normalize sustainably only toward the end of this year," Ms. Tan said.

Write to Avantika Chilkoti at [e-mail] and Joanne Chiu at [e-mail]

(END) Dow Jones Newswires

April 22, 2020 07:36 ET (11:36 GMT)

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