The UK’s FTSE 100 managed to climb this afternoon after the Bank of England announced £200bn of quantitative easing and slashed interest rates close to zero.
European stocks also turned green, having been mired in the red despite the European Central Bank (ECB) announcing a €750bn (£700bn) asset purchase programme to deal with the coronavirus fallout.
Wall Street stocks tracked higher after the US Federal Reserve announced it would extend its currency swap lines programme.
London’s blue-chip index had risen 1.5 per cent by 3.50pm to around 5,147 points after falling 3.5 per cent yesterday.
European stocks returned to positive territory after climbing in early trading. The continent-wide Stoxx 600 jumped from 1.2 per cent down to 2.3 per cent up. And France’s CAC 40 was 1.6 per cent higher while Germany’s Dax was up 1.8 per cent.
Investors had shrugged off ECB’s move to massively ramp up its so-called quantitative easing programme, by which it creates digital money to buy bonds.
It will purchase €750bn of government and corporate debt this year, pumping money into the Eurozone economy which is in dire need of cash as growth plummets.
US stocks rose after another bruising day of falls yesterday. The S&P 500 was up almost two per cent, the Dow Jones was two per cent higher and the Nasdaq surged 3.6 per cent.
The FTSE 100, European and US stocks’ rise came after the Fed said it would supply dollars to nine more central banks from Scandinavia to Brazil via its so-called swap lines.
Indices around the world have now fallen more than 30 per cent since recent highs – putting them deep into so-called bear territory – as investors brace themselves for a deep recession triggered by coronavirus containment efforts.
FTSE 100 rises from flames
The Bank of England today slashed rates to a record low of 0.1 per cent – as low as it’s likely to go. And new Bank governor Andrew Bailey also announced £200bn of quantitative easing.
That bolstered the FTSE 100, which had been mired in red.
“The Bank of England and the Treasury are moving rapidly to try and help coronavirus-affected businesses and households and hence limit the potential damage to the UK economy, which undoubtedly will be substantial over the next few months at least,” Howard Archer, chief economic adviser to the EY Item Club, said.
It follows another £20bn of fiscal stimulus chancellor Rishi Sunak announced for businesses. And the government has also launched £330bn in loans to help UK businesses through the coronavirus crisis.
“The fact that the Bank of England felt compelled to announce additional stimulative measures today … highlights its concern over the deteriorating UK economic situation and outlook,” Archer added.
“It is also significantly concerned over the recent marked rise in UK gilt yields amid tightening financial conditions and the plan to but £200 billion more of gilts and corporate bonds is clearly aimed at tackling this.”
ECB says ‘no limits’ to Eurozone support
“Extraordinary times require extraordinary action,” ECB president Christine Lagarde tweeted after the announcement. “There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”
Deutsche Bank analyst Jim Reid said the scheme “is equivalent to six to seven per cent of GDP – that is on the scale of what was seen during the last systemic crisis”.
“The ECB basically said that it would do all it could under its mandate – increase size, adjust the security mix, continue as long as necessary and would tolerate any impediments.”
Despite the announcement, China’s Shanghai Composite Index fell one per cent overnight, Hong Kong’s Hang Seng shed two per cent, and Japan’s Nikkei dropped one per cent.
Andrew Kenningham, senior Europe economist at Capital Economics, said he thinks the ECB is not finished. “We think the Bank will need to meet again before long to raise its issuer limits and may also be involved in a coordinated fiscal support,” he said.
Fed pumps more money into the system
The world’s most powerful central bank, the Fed, has pumped liquidity into the system to help struggling firms and banks access the cash they need to keep afloat.
It today said it would extend its dollar swap lines to Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand. Under the system it provides dollars in exchange for other currencies to foreign central banks who then pass them on to firms in need.
The scheme was established in the financial crisis and was beefed up on Sunday night but only previously applied to a group of central banks including the UK’s and Eurozone’s.
Pascal Blanque, chief investment officer at asset manager Amundi, said: “For the first time since 2008 authorities are perceiving the need for coordinated global action.”
Yet he said markets like the FTSE 100 will remain volatile until they see a clear sign of hitting the bottom such as 2containment in Europe at a time of coordinated fiscal and monetary push, or the discovery of a medical treatment”.
Currencies slide as dollar reigns supreme
Despite the rise in equities, foreign currencies continued to be pummelled as investors rushed towards the safety of the dollar.
The greenback is used in the majority of global transactions, keeping demand high and helping it hold its value at times of crisis.
Sterling had fallen 0.4 per cent against the dollar to $1.153, around its lowest level since 1985.
But this afternoon it soared back up by 1.6 per cent to $1.1755.
The euro had shed 1.4 per cent against the US currency, taking it down to $1.075.
In a sign of the seriousness of the slowdown, investors are also selling safe-haven assets such as government bonds in favour of simply holding the dollar.
Charalambos Pissouros, senior market analyst at JFD Group, said: “Investors appear to be liquidating positions everywhere in favor of holding cash, and especially dollars, the world’s reserve currency.”