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Business

Asian markets tread cautiously ahead of U.S. stimulus, jobs

SINGAPORE (Reuters) – Asian stock markets made a cautious start on Thursday following two days of rallies, as investors await the passage and details of a $2 trillion stimulus package in the United States to combat the economic fallout from the coronavirus.

Senate leaders hope to vote on the plan later on Wednesday in Washington, but it still faces criticism. The bill includes a $500 billion fund to help hard-hit industries and a comparable amount for payments up to $3,000 to millions of U.S. families.

It cannot come soon enough, with potentially enormous weekly U.S. initial jobless claims to appear in data due at 1230 GMT.

Australia’s S&P/ASX 200 index rose 1.5% in early trade – its third positive start in as many sessions, but also its most muted. Japan’s Nikkei fell 2.2%.

Hong Kong futures were 1% higher and China A50 futures were up 0.2%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%.

“There has been so much stimulus thrown at this,” said Jun Bei Liu, portfolio manager at Tribeca Investment Partners in Sydney.

“But the positivity related to it is really just sentiment,” she said, adding that investors were largely flying blind with so many companies withdrawing earnings guidance. Jobless figures may offer a “reality check,” she said.

In perhaps an early sign of the fragile mood, the risk-sensitive Australian dollar dropped 1% and the safe-haven Japanese yen rose in morning trade. [FRX/]

U.S. stock futures rose 1%, following the first back-to-back session rises on Wall Street in over a month.

The Dow Jones Industrial Average rose 2.4% and the S&P 500 1.2%, while the Nasdaq Composite dropped half a percent following a Nikkei report that Apple was weighing a delay in the launch of its 5G iPhone.

JOBLESS CLAIMS TO TEST BOUNCE

The money at stake in the stimulus bill amounts to nearly half of the $4.7 trillion the U.S. government spends annually.

But it also comes against a backdrop of bad news as the coronavirus spreads and as jobless claims are set to soar, with both expected to test the nascent bounce in markets this week.

California Governor Gavin Newsom told reporters on Wednesday that a million Californians had already applied for jobless benefits this month – a number that knocked stocks from session highs and has analysts bracing for worse to come.

RBC Capital Markets economists had expected a national figure over 1 million in Thursday’s data, but say “it is now poised to be many multiples of that,” as reduced hours across the country drive deep layoffs.

“Something in the 5-10 million range for initial jobless claims is quite likely,” they wrote in a note.

That compares to a 695,000 peak in 1982. Forecasts in a Reuters poll range from a minimum of 250,000 initial claims, all the way up to 4 million.

Trepidation seemed to put a halt on the U.S. dollar’s recent softness in currency markets, with the dollar ahead 1% against the Antipodean currencies and up 0.6% against the pound.

It slipped 0.3% to 110.85 yen.

U.S. crude slipped 1.5% to $24.11 per barrel and gold steadied at $1,608.14 per ounce.

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Economy

'Survival mode' – oil patch workers let it all hang out in post-crash Dallas Fed survey

March 25 (Reuters) – Texas oilworkers are not known for being genteel, and the market’s crash this month brought out some colorful takes as the drama unfolded, visible in the Dallas Federal Reserve Bank’s survey of economic activity in the oil patch.

The bank’s quarterly survey of economic activity released on Tuesday illustrates how swiftly things turned. The numbers are bad. The comments are dire.

“We will likely shut down drilling next month, pay an early termination penalty to our rig contractor, and liquidate excess hedges to pay down debt. We are in survival mode now,” wrote one of the survey respondents, who was from an exploration and production firm.

The Dallas Fed’s survey fell from minus-4.2 in the fourth quarter (not great, not awful), to minus-50.9 in the first quarter (worst ever). The survey apparently arrived as the price war between Saudi Arabia and Russia erupted and the coronavirus pandemic worsened, so it caught producers and service companies at a notable moment of panic.

“The administration talks about their great relationship with Russia and Saudi Arabia. Why won’t they place one of their ‘perfect’ phone calls to help negotiate the end of this oil war?” one respondent wrote.

That comment was one of many referencing a need for government intervention, a view that has made the rounds among even larger producers in recent days – and a departure from the oil industry’s traditionally jaundiced view on the role of government.

But tough times make for strange bedfellows. It was only last week when a Texas oil regulator floated the notion of making a deal with OPEC, which had generally been anathema to oil producers.

The United States produces nearly 13 million barrels of oil per day, about half from the Dallas Fed’s coverage region, which includes all of Texas, northern Louisiana and southern New Mexico. Estimates for the crash in demand have gone from bad to worse, with some firms now saying consumption will fall as much as 20% in the next quarter.

“I am shutting in everything I can and cutting general and administrative expenses to minimal levels to try and ride out the storm. Those who are in debt will not survive,” another respondent said.

The twin shocks of supply and demand come at a time when the shale industry was already struggling to make good on returns desired by investors and is now facing a months-long economic calamity.

Some, at least, were more droll in their view of the decline.

“What is the difference between a Texas oilman and a pigeon? The pigeon can put down a deposit on a new Mercedes. For those of us in the distressed-asset side of the oil patch, things are looking up,” they wrote. (Reporting by David Gaffen in New York Editing by Matthew Lewis)

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Business

Dollar falls for a second day on Fed stimulus

LONDON (Reuters) – The dollar slipped for a second consecutive day on Tuesday after the U.S. Federal Reserve unveiled fresh measures to supply precious liquidity into funding markets, sending risky currencies such as the Australian dollar soaring.

The Fed announced unlimited quantitative easing and programs to support credit markets on Monday in a drastic bid to backstop an economy reeling from emergency restrictions on commerce to fight the coronavirus.

Against a basket of its rivals =USD, the dollar fell 0.5% to 101.52, down more than 1% from Monday’s highs and having hit a more than three-year high of 102.99 on Friday.

“The dollar funding conditions are easing slightly compared with a week ago, though I wouldn’t say things are normal. While the Fed is pumping dollars, we still need to wait and see if that money will flow to every corner of the economy,” said Koichi Kobayashi, chief manager of forex at Mitsubishi Trust Bank.

While the Fed’s latest measures were seen to have effectively broken the spreading freeze in the dollar funding markets in the short-term, the shock to the real economy is expected to last for a far longer period with latest PMI data offering a glimpse of the pain.

Japan posted its biggest ever services sector decline and factory activity shrank at its fastest in a decade, consistent with a 4% economic contraction this year. The picture in Australia was similar.

Ulrich Leuchtmann, head of FX and commodity research at Commerzbank said in a note that as more economies enact draconian measures to lock down their economies, the global economy would be massively constrained in the near future and markets could quickly turn back into risk-off mode.

But in early London trading, battered currencies rallied.

The euro gained 1% to $1.0834 EUR=EBS, bouncing back from a near three-year low of $1.0636 in the previous session.

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  • March forex daily turnover hits $2.3 trillion as virus fuels volatility: CLS

The British pound also rose 0.9% to $1.1650 GBP=D3, up more than two cents from its 35-year low of $1.1413 set last week.

The Fed announced various programs including purchases of corporate bonds, guarantees for direct loans to companies and a plan to get credit to small and medium-sized business.

Trading remained volatile, with the Australian dollar rising 2.0% to $0.5952 AUD=D3, extending its recovery from a 17-year low of $0.5510 touched last week.

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Business

Asia stocks rally, Fed launches limitless QE against economic reality

SYDNEY (Reuters) – Asian stocks rallied on Tuesday as the U.S. Federal Reserve’s sweeping pledge to spend whatever it took to stabilize the financial system eased debt market pressures, even if it could not offset the immediate economic hit of the coronavirus.

While Wall Street seemed unimpressed, investors in Asia were encouraged enough to lift E-Mini futures for the S&P 500 ESc1 by 1.9% and Japan’s Nikkei .N225 by 4.9%.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 1.2%, though that followed a drop of almost 6% on Monday. South Korea .KS11 and Australia also recouped a little of their recent losses.

In its latest drastic step, the Fed offered to buy unlimited amounts of assets to steady markets and expanded its mandate to corporate and muni bonds.

The numbers were certainly large, with analysts estimating the package could make $4 trillion or more in loans to non-financial firms.

“This open-ended and massively stepped-up program of QE is a very clear signal that the Fed will do all that is needed to maintain the integrity and liquidity of the Treasury market, key asset-backed markets and other core markets,” said David de Garis, a director of economics at NAB.

“COVID-19 developments remain the wild card, as is the development of government policies to support cash flow and the economy.”

The Fed’s package helped calm nerves in bond markets where yields on two-year Treasuries hit their lowest sine 2013, while 10-year yields dropped back sharply to 0.77% US10YT=RR.

Yet analysts fear it will do little to offset the near-term economic damage done by mass lockdowns and layoffs.

Speculation is mounting data due on Thursday will show U.S. jobless claims rose an eye-watering 1 million last week, with forecasts ranging as high as 4 million.

Goldman Sachs warned the U.S. economic growth could contract by 24% in the second quarter, two-and-a-half times as large as the previous postwar record.

A range of flash surveys on European and U.S. manufacturing for March are due later on Tuesday and are expected to show deep declines into recessionary territory.

While governments around the globe are launching ever-larger fiscal stimulus packages, the latest U.S. effort remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.

The logjam combined with the stimulus splash from the Fed to take a little of the shine off the U.S. dollar, though it remains in demand as a global store of liquidity.

“The special role of the USD in the world’s financial system – it is used globally in a range of transactions such as commodity pricing, bond issuance and international bank lending – means USD liquidity is at a premium,” said CBA economist Joseph Capurso.

“While liquidity is an issue, the USD will remain strong.”

The dollar eased just a touch on the yen to 110.90 JPY= after hitting a one-month top at 111.59 on Monday, while the euro inched up to $1.0754 EUR= from a three-year trough of $1.0635.

The dollar index stood at 102.120 =USD, off a three-year peak of 102.99.

Gold surged in the wake of the Fed’s promise of yet more cheap money, and was last at $1,564.51 per ounce XAU= having rallied from a low of $1,484.65 on Monday. [GOL/]

Oil prices also bounced after recent savage losses, with U.S. crude CLc1 up 64 cents at $24.00 barrel. Brent crude LCOc1 firmed 53 cents to $27.56. [O/R]

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Business

Asia stocks set to rally as Fed goes limitless

SYDNEY (Reuters) – Asian stocks were set to rally on Tuesday as the U.S. Federal Reserve’s sweeping pledge to spend whatever it took to stabilize the financial system eased debt market pressures, even if it could not offset the immediate economic hit of the coronavirus.

While Wall Street still finished lower, investors in Asia were encouraged enough to lift E-Mini futures for the S&P 500 ESc1 by 2%.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.5% in early trade, while Nikkei futures NKc1 traded at 18,115 compared to a cash close of 16,887.

In its latest drastic step, the Fed offered to buy unlimited amounts of assets to steady markets and expanded its mandate to corporate and muni bonds.

The numbers were certainly large, with analysts estimating the package could make $4 trillion or more in loans to non-financial firms.

“This open-ended and massively stepped-up program of QE is a very clear signal that the Fed will do all that is needed to maintain the integrity and liquidity of the Treasury market, key asset-backed markets and other core markets,” said David de Garis, a director of economics at NAB.

“COVID-19 developments remain the wild card, as is the development of government policies to support cash flow and the economy.”

The Fed’s package helped calm nerves in bond markets where yields on two-year Treasuries hit their lowest sine 2013, while 10-year yields dropped back sharply to 0.77% US10YT=RR.

Yet analysts fear it will do little to offset the near-term economic damage done by mass lockdowns and layoffs.

Speculation is mounting data due on Thursday will show U.S. jobless claims rose an eye-watering 1 million last week, with forecasts ranging as high as 4 million.

Goldman Sachs warned the U.S. economic growth could contract by 24% in the second quarter, two-and-a-half times as large as the previous postwar record.

A range of flash surveys on European and U.S. manufacturing for March are due later on Tuesday and are expected to show deep declines into recessionary territory.

While governments around the globe are launching ever-larger fiscal stimulus packages, the latest U.S. effort remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.

The logjam combined with the stimulus splash from the Fed to take a little of the shine off the U.S. dollar, though it remains in demand as a global store of liquidity.

“The special role of the USD in the world’s financial system – it is used globally in a range of transactions such as commodity pricing, bond issuance and international bank lending – means USD liquidity is at a premium,” said CBA economist Joseph Capurso.

“While liquidity is an issue, the USD will remain strong.”

The dollar eased just a touch on the yen to 110.90 JPY= after hitting a one-month top at 111.59 on Monday, while the euro inched up to $1.0756 EUR= from a three-year trough of $1.0635.

The dollar index dipped 0.3% to 102.140 =USD.

Gold surged in the wake of the Fed’s promise of yet more cheap money, and was last at $1,564.51 per ounce XAU= having rallied from a low of $1,484.65 on Monday. [GOL/]

Oil prices also bounced a little after recent savage losses, with U.S. crude CLc1 up $1.16 at $24.52 barrel.[O/R]

Graphic: Asian stock markets here

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Economy

GLOBAL MARKETS-Market panic lingers despite unprecedented Fed support

(Adds gold settlement prices, aluminum, copper milestones)

* World FX rates in 2020 tmsnrt.rs/2egbfVh

By Rodrigo Campos

NEW YORK, March 23 (Reuters) – Global equities slid further and safe-haven assets rose on Monday after a massive array of new programs from the U.S. Federal Reserve underscored the “severe” disruptions the coronavirus pandemic poses to a fast-weakening world economy.

Traditional safe-havens such as gold, U.S. Treasury and German debt rose while industrial metals fell as the outlook for global growth grew dimmer.

London aluminum prices slumped to their lowest since June 2016 while Shanghai copper fell to the weakest in nearly 11 years on fears that the lockdowns among a growing number of countries will usher in a severe recession.

Oil prices extended their decline as the coronavirus epidemic crushes demand worldwide.

The Fed for the first time will back purchases of corporate bonds, backstop direct loans to companies and “soon” will roll out a program to get credit to small and medium-sized business as it intervenes beyond the financial markets.

“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the Fed said in a statement.

While S&P 500 futures rose sharply after the announcement, U.S. stocks mostly traded in the red from the opening bell, dropping almost 5% at one point.

“It’s their bazooka moment. It’s their ‘We’ll do whatever it takes’ moment,” said Russell Price, chief economist at Ameriprise Financial Services in Troy, Michigan, said about the U.S. central bank’s latest move.

“But quite frankly the market is just in a waiting period right now until the virus runs its course and some of the therapies and other treatments are able to improve outcomes.”

Morgan Stanley analysts said they expect global growth to dip close to global financial crisis lows and U.S. growth to drop to a 74-year low in 2020. Goldman Sachs sent a similar warning.

The Dow Jones Industrial Average fell 757.69 points, or 3.95%, to 18,416.29, the S&P 500 lost 86.52 points, or 3.75%, to 2,218.4 and the Nasdaq Composite dropped 97.71 points, or 1.42%, to 6,781.81.

The Dow at one point traded below its closing level on Nov. 8, 2016, effectively erasing all the gains since the election of Donald Trump as U.S. president.

The pan-European STOXX 600 index lost 4.30% and MSCI’s gauge of stocks across the globe shed 3.81%.

Emerging market stocks lost 5.61%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 5.75% lower, while Japan’s Nikkei rose 2.02%.

Globally, analysts are dreading data on weekly U.S. jobless claims due on Thursday amid forecasts they could balloon by 750,000 and possibly by more than a million.

The Fed’s moves put pressure on the U.S. dollar, which has risen sharply as the panic-selling drives investors toward the liquidity of the greenback and to dollar-denominated assets.

The buying continued in U.S. Treasuries, for example, and yields fell sharply.

“At the end of the day, the Fed’s injections announced Monday are designed to backstop liquidity in market functioning but cannot avert the economic calamity that’s already underway,” said Jon Hill, U.S. rates strategist at BMO Capital Markets.

“It really is just trying to make sure markets work and companies and municipalities can access markets when needed, but that doesn’t mean layoffs aren’t coming, it doesn’t mean that a recession is not coming. And if you’re the equity market, it’s really hard to rally even on that news.”

Benchmark 10-year Treasury notes last rose 1-29/32 in price to yield 0.7452%, from 0.938% late on Friday. The 30-year bond last rose 4-30/32 in price to yield 1.3719%, from 1.562%.

The dollar index was little changed after falling as much as 0.84% after the Fed’s announcements. The dollar fell 0.127%, with the euro up 0.45% to $1.0742.

The Japanese yen weakened 0.52% versus the greenback at 111.34 per dollar, while Sterling was last trading at $1.1529, down 0.96% on the day.

U.S. gold futures settled 5.5% higher at $1,567.60 an ounce.

Investors are waiting on the U.S. government to pass stimulus to support the economy.

“I think the one thing we really need to see is more fiscal ammunition coming to the fore,” said Mazen Issa, senior currency strategist at TD Securities in New York. “You’ve got to think about those that are asked to be socially distant and stay home from work and not earn a paycheck, and they’re taking their time to make them whole. They need to speed it up.”

U.S. crude recently rose 3% to $23.31 per barrel and Brent was recently at $27.10, up 0.44% on the day.

Spot gold added 3.7% to $1,552.49 an ounce.

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Business

Rout resumes as more nations self-isolate against virus

LONDON/SYDNEY/HONG KONG (Reuters) – Financial markets around the world took another hammering on Monday as a rising tide of national coronavirus lockdowns threatened to overwhelm policymakers’ frantic efforts to cushion what is likely to be a deep global recession.

European stocks dived 4.5% as they reopened and commodity markets also saw more heavy selling as the global death toll from the virus passed 14,000.

Investors tried to take cover in ultra-safe government bonds and in the Japanese yen in currency markets but with so much uncertainty about when any semblance of normality might return there were few places to really hide.

“Further deterioration in the COVID-19 outbreak is severely damaging the global economy,” Morgan Stanley analysts warned on Monday. “We expect global growth to dip close to GFC (global financial crisis) lows, and U.S. growth to a 74-year low in 2020.”

Goldman Sachs sent a similar warning and in a taste of the pain to come, E-Mini futures for the S&P 500 dived 3.5% [.N] and MSCI’s main world stocks index was down 1.6% and almost at 4-year lows.

UBS Australian head of equities distribution George Kanaan said global financial markets were gripped by fear, which seemed unlikely to ease any time soon, despite the co-ordinated efforts of governments and central banks around the world.

“I have been in the financial markets for 27 years and I have never seen anything like this,” he told Reuters by telephone from Sydney.

“This is unprecedented in terms of fears and there are two elements driving that.

“First is that this involves masses of people. In the GFC, that was an event that occurred in the investment banks around the world, it didn’t involve people on the street. The second is that social media is helping to drive this fear and panic.”

In Asian trade, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 5.4%, with New Zealand’s market shedding a record 10% at one point as the government closed all non-essential businesses.

Shanghai blue chips dropped 3.3%, though Japan’s Nikkei rose 2.0% aided by expectations of more aggressive asset buying by the Bank of Japan. In Australia, the S&P/ASX200 dropped 5.62% to take the index to a seven-year low.

Globally, analysts are dreading data on weekly U.S. jobless claims due on Thursday amid forecasts they could balloon by 750,000, and possibly by more than a million.

U.S. stocks have fallen more than 30% from their mid-February peak and even the safest areas of the bond market are experiencing liquidity stress as distressed funds are forced to sell good assets to cover positions gone bad.

In contrast to the response by authorities to the global health crisis, however, are calls from some on Wall Street to ease restrictions as soon as possible to give the economy room to recover.

“Extreme measures to flatten the virus ‘curve’ is sensible-for a time-to stretch out the strain on health infrastructure,” former Goldman Sachs Chief Executive Lloyd Blankfein tweeted.

“But crushing the economy, jobs and morale is also a health issue-and beyond. Within a very few weeks let those with a lower risk to the disease return to work.”

MOUNTING ECONOMIC TOLL

The mounting economic toll led to a major rally in sovereign bonds late last week, with efforts by central banks to restore liquidity in the market allowing for more two-way trade.

Yields on the benchmark U.S. 10-year note were down at 0.80%, having dived all the way to 0.84% on Friday from a top of 1.28%. European benchmarks like German Bunds were at around -0.36% down more than 20 bps from last week’s 10-month highs.

Calls were continuing for the euro zone’s 19 governments to issue the bloc’s first joint bonds to try to get the region through the economic crush of the virus lockdowns.

In New Zealand, the central bank announced its first outright purchase of government paper aiming to inject much-needed liquidity into the local market.

In currency markets, the first instinct on Monday was to dump those leveraged to global growth and commodity prices, sending the Australian dollar down 0.8% to $0.5749.

The U.S. dollar started firm but took a step back after partisan battles in the U.S. Senate stopped a coronavirus response bill from advancing.

The dollar eased 0.5% to 110.31 yen while the euro recouped losses to be up 0.1% at $1.0705.

The dollar had been a major gainer last week as investors fled to the liquidity of the world’s reserve currency, while some funds, companies and countries desperately sought more cash to cover their dollar borrowings.

The steady rise in the dollar undermined gold, which slipped 0.3% to $1,493.83 per ounce.

Oil prices were sharply lower. Brent crude futures dropped $1.30, or 4.9%, to $25.66 a barrel, while U.S. crude was down 29 cent to $22.34.

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Business

Asia shares dive with S&P 500, bond yields fall anew

SYDNEY (Reuters) – Asian shares slid on Monday as more countries all but shut down in the fight against the coronavirus, threatening to overwhelm policymakers’ frantic efforts to cushion what is clear to be a deep global recession.

In a taste of the pain to come, E-Mini futures for the S&P 500 dived 5% at the open to be limit down.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2%, with South Korea badly hit.

Japan’s Nikkei added 0.8%, perhaps aided by expectations of more asset buying by the Bank of Japan, but the commodity-heavy Australian market shed 5%.

Oil was not far behind as mass bans on travel worldwide crushed demand for fuel.

Airlines cancelled more flights as Australia and New Zealand advised against non-essential domestic travel, the United Arab Emirates (UAE) halted flights for two weeks and Singapore and Taiwan banned foreign transit passengers.

Brent crude futures slid $1.68 to $25.30 a barrel, while U.S. crude shed $1.01 to $21.62. [O/R]

Analysts fear the collapse in oil and other commodity prices will set off a deflationary wave making it harder for monetary policy easing to gain traction as economies shut down.

Nearly one in three Americans were ordered to stay home on Sunday to slow the spread of the disease, while Italy banned internal travel as deaths there reached 5,476.

U.S. President Donald Trump went on TV to approve disaster deceleration requests from New York and Washington, while St. Louis Federal Reserve President James Bullard warned unemployment could reach 30% unless more was done fiscally.

U.S. stocks have already fallen more than 30% from their mid-February and even the safest areas of the bond market experiencing liquidity stress as distressed funds are forced to sell good assets to cover positions gone bad.

WAITING ON THE DISEASE

“It would be a brave, or foolish, man to call the bottom in equities without a dramatic medical breakthrough,” said Alan Ruskin, head of G10 FX strategy at Deutsche Bank.

Also needed would be evidence that China could re-emerge from the virus without reigniting infections, and that other major economies had hit inflection points for infection rates, he added.

“Even were social distancing to subside at the earliest plausible dates in Europe and the U.S., it will have done extraordinary damage to confidence in a host of key sectors,” Ruskin said.

The mounting economic toll led to a major rally in sovereign bonds late last week, with efforts by central banks to restore liquidity in the market allowing for more two-way trade.

Yields on the benchmark U.S. 10-year note were down at 0.80%, having dived all the way to 0.84% on Friday from a top of 1.28%.

In New Zealand, the central bank announced its first outright purchase of government paper aiming to inject much-needed liquidity into the local market.

In currency markets, the first instinct on Monday was to dump those leveraged to global growth and commodity prices, sending the Australian dollar down 0.8% to $0.5749.

The U.S. dollar started firm but took a step back after partisan battles in the U.S. Senate stopped a coronavirus response bill from advancing.

The dollar eased 0.4% to 110.43 yen, while the euro recouped losses to be flat at $1.0692.

Against a basket of currencies the dollar was still a fraction firmer at 102.510.

The dollar was a major gainer last week as investors fled to the liquidity of the world’s reserve currency, while some funds, companies and countries sought more cash to cover their dollar borrowings.

“The ‘dash for cash’ will remain a key driver of currency markets this week,” said Kim Mundy, a currency strategist at CBA.

“We expect strong USD demand to continue to cause liquidity problems and keep volatility elevated. Direct intervention by central banks in currency markets to reduce market dysfunction is possible.”

The steady rise in the dollar undermined gold, which slipped 0.3% to $1,493.83 per ounce. [GOL/]

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Business

New York order spooks Wall Street, offsets calm from policy efforts

NEW YORK (Reuters) – Wall Street retreated on Friday after New York ordered residents to stay home, rattling investors who had welcomed this week’s fiscal and monetary measures to counter the coronavirus shock and help revive the safe-haven appeal of bonds and gold.

Gold rose more than 3% at one point as it regained a bit of its flight-to-safety luster and the yield on U.S. Treasuries fell as emergency measures aimed at stabilizing financial markets briefly took hold after days of sharp volatility.

The dollar staged a furious rally this week as investors scrambled to obtain cash, rising 4.32% in the biggest weekly gain since the 2008 financial crisis. The policy efforts helped staunch the steep nosedive in global equity markets.

Stocks had gained on Thursday in less-tumultuous trade and were trading higher on Wall Street before New York Governor Andrew Cuomo said he would mandate all non-essential workers to stay home and all non-essential businesses close.

Cuomo pleaded for more medical personnel and supplies to treat coronavirus cases that could overwhelm the hospitals in New York, a state of nearly 20 million.

Cuomo’s remarks “spooked people, it spooked the market,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “It’s all fear, fear of more negative headlines.”

On Wall Street, the Dow Jones Industrial Average fell 913.21 points, or 4.55%, to 19,173.98. The S&P 500 lost 104.47 points, or 4.34%, to 2,304.92 and the Nasdaq Composite dropped 271.06 points, or 3.79%, to 6,879.52.

U.S. stocks had been poised for their first two-day gain since Wall Street tumbled from all-time highs in February to their sharpest decline in three decades.

A top International Monetary Fund official said the impact of the coronavirus pandemic would be “quite severe” but the long expansionary period preceding it should help the global economy weather the shock.

The Federal Reserve rolled out more emergency support as it enhanced efforts with other major central banks to ease a global dollar-funding crunch. It also backstopped a market essential for U.S. state and local government finances and ramped up its purchases of mortgage-backed securities.

Markets have been reassured by the speedy central bank action this week but the full fiscal response from governments remains to be seen and is critical, said Kristina Hooper, chief global market strategist at Invesco in New York.

“The dash to cash we saw earlier this week has been relaxed a bit. Now Treasuries are once again perceived to be a safe-haven asset class,” Hooper said. “That’s good, as it suggests at least a dialing down of risk-off sentiment.”

Norway’s central bank became the latest to cut interest rates, while China was set to unleash trillions of yuan of fiscal stimulus to revive its economy.

The dollar eased after currencies, from the Australian dollar to the British pound, tumbled to multi-year lows earlier this week.

MSCI’s U.S.-centric gauge of stocks across the globe shed 1.84%, while emerging market stocks rose 4.58%.

U.S. gold futures settled 0.4% higher at $1,484.6 an ounce.

The dollar rose against a basket of currencies in a week when investors liquidated everything from stocks to bonds to gold and commodities to raise cash. The dollar hit a three-year peak of 102.99 in early Asian trading.

The dollar index fell 0.214%, with the euro down 0.24% to $1.0664.

The Japanese yen weakened 0.44% versus the greenback at 111.23 per dollar.

U.S. home sales surged to a 13-year high in February, but the housing market recovery is likely to be derailed by the coronavirus outbreak, which has unleashed a wave of layoffs and left the American economy headed toward recession. [L1N2BD0QT]

The global economy already is in recession as the hit to economic activity from the pandemic has become more widespread, according to economists polled by Reuters.

Oxford Economics cut its global growth forecast for 2020 to zero, making this year the second-weakest for the world economy in almost 50 years of comparable data, with only 2009, in the depths of the global financial crisis, being worse.

The broad pan-European STOXX 600 index rose 1.82%. But stocks pared some of their gains as fears over the economic shock from the coronavirus quashed initial optimism.

Britain’s FTSE rose 0.8%, Germany’s DAX gained 3.7%, and France’s CAC 40 rose 5%.

The European Central Bank’s 750 million-euro emergency bond purchase scheme, announced on Wednesday, has boosted southern European debt, alleviating some concern over how already heavily indebted states would finance the fiscal measures needed to defend against coronavirus.

Investors in Asia were happy that Wall Street had not plunged again. South Korean shares bounced 7.4%, though that still left them down more than 11% for the week.

Australia’s beleaguered market eked out a 0.70% gain, and futures for Japan’s Nikkei were trading up at 17,710, compared with the cash close of 16,552.

Oil prices fell for the fourth week in a row, with U.S. crude posting its worst week since 1991, as the coronavirus outbreak knocked the demand outlook and Moscow rejected U.S. intervention in its price war with Saudi Arabia.

West Texas Intermediate fell $2.69 to settle at $22.53 a barrel while Brent crude futures fell $1.49 to settle at $26.98 a barrel.

Euro zone bond yields tumbled as risk sentiment picked up to support Southern European bonds.

Relatively calm trading in U.S. Treasuries early in the session returned to the volatile patterns seen earlier this week after Cuomo said he would issue his executive order.

Benchmark 10-year U.S. Treasury notes fell 124 basis points to yield 0.8869%.

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U.S. to send envoy to Saudi Arabia as Texas suggests oil output cuts

WASHINGTON/HOUSTON (Reuters) – The Trump administration, scrambling to respond to the global oil price crash, plans to send an energy representative to Saudi Arabia, officials said on Friday, while a regulator from the top oil-producing state of Texas took the rare step of considering production cuts.

Oil prices LCOc1CLc1 have lost more than half their value in the last two weeks as Saudi Arabia and Russia kicked off a price war and the coronavirus pandemic destroyed demand.

The crash has shocked the oil industry as a pact among OPEC and non-OPEC producers to cooperate imploded, triggering a production free-for-all. Texas regulators are considering the unusual step of intervening to curb output for the first time in decades, while the United States is scrambling to negotiate with Saudi Arabia, which has unleashed production after years of touting its role as a stabilizing force for markets.

Saudi Arabia and Russia are locked in a war for global oil market share after their three-year deal to restrain output collapsed this month. The kingdom has vowed to increase production to a record 12.3 million barrels per day, and has chartered numerous tankers to ship oil around the world, pushing prices to near 20-year lows this week.

U.S. officials believe Saudi Arabia’s move to flood oil markets compounds the global economic crash at a time of a crisis caused by the pandemic.

A senior Energy Department official will be sent to Riyadh for months at least to work closely with State Department officials and the existing energy attache, the senior U.S. officials said, on the condition of anonymity.

Trump administration officials said Saudi Arabia has for decades been a steadfast leader of stability in the global oil market. The energy representative would help the countries support economic growth in a transparent market, they said.

The price crash is also devastating to U.S. oil producers, some of which have already begun putting employees on furlough.

The hope is that President Donald Trump could negotiate with Saudi Arabia and Russia and convince them to match cuts with a similar cut in production in Texas, said Ryan Sitton, a commissioner with the Texas Railroad Commission, the body that regulates the state’s oil and gas industry.

Sitton said production limits could be implemented quickly, though no one who works at the agency was around the last time the state limited production, in the early 1970s.

“We need to take the time to hear from everybody,” he said, adding that he was not yet advocating for the cuts. But “if we can help (Trump) get a deal done, then I think that’s when we do something.”

Sitton said in a tweet that he spoke with OPEC Secretary General Mohammad Barkindo about an international deal “to ensure economic stability as we recover from” the coronavirus outbreak. Sitton said Barkindo was “kind enough to invite me to the next OPEC meeting in June.”

Barkindo told Reuters that he and Sitton discussed their “perspective on current developments, and the possibility of future cooperation” in a teleconference. Barkindo and OPEC ministers have, in the past, met with shale-industry executives at annual conferences.

U.S. INDUSTRY UNMOVED

Some U.S. industry representatives were skeptical that Texas should intervene in the market. U.S. oil producers have long resisted such a move, and the industry’s largest trade association did not sound convinced Friday, either.

“Our view is simple. Quotas are bad,” said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute. “They’ve been proven ineffective and harmful. There’s no reason during this time to try to imitate OPEC.”

In the last several years, shale operators using the innovative hydraulic fracturing, or fracking, technique, have been boosted U.S. oil output to nearly 13 million bpd, making it the world’s largest producer. Since 2016, as OPEC restrained production, the United States has taken market share from Saudi Arabia, Russia and other nations.

Russia has been slower to come on board with OPEC’s continued efforts to bolster prices, and the country’s largest oil producer, Rosneft (ROSN.MM), has been an opponent of the deal with OPEC to cut supply. Units of that company, and its managers, were recently sanctioned by the United States due to its trade relationship with Venezuela.

Trump administration officials will continue to reduce global oil output with sanctions on what the officials called bad actors in Iran and Venezuela, both of which are OPEC members, and their shipping networks, the officials said. To the extent that Russia is involved in marketing Venezuelan oil, it will be sanctioned, the officials said.

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