Trader Michael Gallucci prepares for the day's activity on the floor of the New York Stock Exchange. Picture: AP
Trader Michael Gallucci prepares for the day's activity on the floor of the New York Stock Exchange. Picture: AP

Wall Street’s rollercoaster ride after Black Monday collapse

Stocks gave up most of an early recovery on Wall Street and briefly dipped into the red a day after the Black Monday trading halt, the market's biggest drop since 2008.

The Dow was up 945 points in the early going, fell into the red and then went higher again in the afternoon.

Markets bounced after Vice President Mike Pence said the nation's big health insurers would cover co-pays for coronavirus testing.

 

Earlier, US stocks, oil and other international financial markets won back some of their record crash amid hopes Washington and other governments will introduce measures to boost the coronavirus-cratered global economy.

Wall Street bounced back in early trading as markets reacted positively to President Donald Trump's moves to shore up the economy against the impacts of the coronovirus.

Investors also moved back into global markets following the oil price shock which stunned the world in recent days and saw the worst day of trading since the 2008 financial crisis, resulting in a temporary trading halt on Wall Street.

The Dow Jones industrial average surged about 800 points early Tuesday before giving up some gains as investors cheered potential stimulus measures from the White House.

 

Following the Wall Street Black Monday Mr Trump said he said he would meet Republican leaders to discuss a "very substantial" payroll tax cut and legislation to protect hourly wage earners who miss work because of the virus.

 

 

Japanese Prime Minister Shinzo Abe's task force approved a $A6 billion package with support for small to medium-sized businesses, while Australian Prime Minister Scott Morrison is expected to announce details of a $10 billion stimulus package.

"Markets are always enamored with tax cuts, or even the hope thereof. Yesterday's sell-off was so extreme that it's not at all surprising to see a bounce," said Steve Sosnick, chief strategist at Interactive Brokers.

The S&P 500 rose more than 3 per cent, rebounding from its steepest decline in more than a decade. European stocks also climbed, with many indexes more than 2 percent higher. Asian markets rose as well.

Investors are looking for quick, coordinated aid to support companies and households who are going to lose income because of the virus.

Strategists at BlackRock Investment Institute say that could include generous sick-pay programs or even direct payments to households.

For businesses, governments could suspend collecting tax revenue to give them some temporary relief and hold on to cash as the world waits for the outbreak to be contained. "That would prevent these temporary disruptions from turning into a full-blown global recession," strategists at BlackRock Investment Institute wrote in a report.

But great uncertainty remains.

Because the coronavirus is new, experts can't say for sure how far it will ultimately spread. That has investors worried about the worst-case scenario for corporate profits and the economy if factories and supply chains are shut around the world due to quarantines and people stay huddled at home instead of working or spending.

That's why many experts say the market will continue to swing sharply at least until the number of new cases decelerates.

AUSSIE MARKET'S DRAMATIC RECOVERY

The Australian share market has staged a dramatic recovery after plunging in early trade following heavy selling on Wall Street overnight.

In early trade today, the ASX 200 index plunged into a bear market as investors continued to hit the sell button amid the rout on global stock markets.

But it bounced dramatically after US President Donald Trump announced extensive stimulus measures to prop up the American economy.

Shortly before 1pm, the ASX 200 was up 1.8 per cent - marking a swing from its trough this morning of 5.8 per cent.

The index had dropped more 3.5 per cent in early trade, falling below 5540 points.

That meant it had more than 22 per cent since it hit a record high of 7162.5 points on February 20 amid fears the spread of coronavirus would spark a global recession.

The Australian share market has plunged into a bear market as investors continue to hit the sell button amid a deep and ongoing rout on global stock markets. Picture: AAP
The Australian share market has plunged into a bear market as investors continue to hit the sell button amid a deep and ongoing rout on global stock markets. Picture: AAP

 

The sell-off took the peak-to-trough plunge in the index beyond the 20 per cent level - the threshold regarded as a bear market.

Stock markets in London and elsewhere in Europe are now in bear markets while Wall Street in the US is on the edge of one.

The dramatic day on the stock exchange comes as Qantas announces it will reduce its international flying capacity by almost a quarter over the next six months in response to coronavirus.

All Qantas and Jetstar staff are being asked to take paid or unpaid leave, while Qantas Group CEO Alan Joyce will take no salary for the remainder of this financial year.

It has cut its flights to Asia by 31 per cent, to the US by 19 per cent, the UK by 17 per cent and trans-Tasman flights by 10 per cent.

In total, the cutback is the equivalent of grounding 38 Qantas and Jetstar aircraft.

This morning's sell off on the ASX follows a horror session on Wall Street overnight where the Dow Jones Industrial Average plunged 7.8 per cent in its worst days since 2008.

US stock fell so hard at the open that a 15 minute trading halt was triggered - the first time that emergency brake had been used since October 1997.

Australian shares have been in free fall for more than two weeks now as concern around the global coronavirus outbreak has morphed into panic.

 

Another $60 billion has been wiped from the value of the nation's 200 largest listed companies this morning, adding to yesterday's $137.1 billion drop.

Close to $480 billion has been erased from the value of the ASX 200 since it peaked on February 20.

Investors generally consider a drop of 20 per cent from a recent high to signify a bear market, raising the expectations of a drawn out period of negative sentiment.

"There's a lot of fear in the market and if the price of oil continues to move lower it's an indication that a global recession is not far away," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The CBOE Volatility index, a gauge of investor anxiety, touched its highest level since December 2008.

 

STIMULUS PACKAGE UNDERGOING FINAL TOUCHES

Scott Morrison has appealed to Australians' patriotism to guide the nation through the spread of the deadly coronavirus as his government prepares to jettison its planned surplus.

But the prime minister has also reassured Australians his government won't look at further cuts to essential services such as schools, hospitals and the NDIS as it deals with the economic impact of the health crisis.

His government is putting the final touches on a stimulus package, expected to be worth as much as $10 billion.

In a speech to business leaders on Tuesday morning, Mr Morrison outlined seven principles guiding that economic response.

He says it must be proportionate, timely and scalable, targeted to specific issues, aligned with other areas of policy including the RBA's actions, use existing delivery mechanisms such as Centrelink payments, temporary, and lift productivity.

The coronavirus is a "new, complex, hydra-headed and rapidly evolving challenge", he told the AFR summit in Sydney.

 

Scott Morrison’s government is putting the final touches on a stimulus package, expected to be worth as much as $10 billion. Picture: AAP
Scott Morrison’s government is putting the final touches on a stimulus package, expected to be worth as much as $10 billion. Picture: AAP

"Whatever you thought 2020 was going to be about, think again," Mr Morrison said.

"We now have one goal together this year: to protect the health, the wellbeing and livelihoods of Australians through this global crisis, and to ensure that when the recovery comes, and it will, we are well-positioned to bounce back strongly on the other side." It is important to remember the problem is only a temporal one, not structural, and learn the lessons of the global financial crisis, he said. "The measures must be temporary and accompanied by a fiscal exit strategy. They cannot be baked into the bottom line for years to come, keeping the budget under water." Treasurer Josh Frydenberg says the government is no longer focused on its promised surplus.

"Our package will have an immediate impact across the economy, it will be targeted, it will be responsible and measured," he told ABC news. Mr Morrison described the crisis as a "team Australia moment" and told businesses they can help out by paying suppliers promptly and keeping their staff in jobs.

"Hold on to your people because you will need them on the bounce back on the other side. Wherever possible, support them - full-time, part-time, casual - including with paid leave if they need to take time off during the course of the virus."

Mr Morrison says he expects the stock market to respond in a less volatile way when more data was available, pointing out coronavirus had a lower death rate than other illnesses such as SARS.

"This has a fixed life, this virus. It will run its course."

 

The ASX has now fallen by more than 22 per cent since it hit a record high of 7162.5 points on February 20 as investors fear the coronavirus-outbreak will spark a global recession. Picture: AAP
The ASX has now fallen by more than 22 per cent since it hit a record high of 7162.5 points on February 20 as investors fear the coronavirus-outbreak will spark a global recession. Picture: AAP

 

Business Council of Australia president Tim Reed says the government should provide temporary tax relief for small business, so they can retain staff.

Mr Reed expects one quarter of negative economic growth to occur because of the virus, and says people who lose their jobs because of the health crisis shouldn't have the usual wait to receive welfare.

Unions have raised fears about the fate of about 3.3 million Australians in casual jobs who don't have access to paid sick leave.

The workers' groups will raise the issue with Industrial Relations Minister Christian Porter when they meet with him on Tuesday.

 

STOCK TRADING HALTS ON WALL STREET AMID PANIC

Overnight on Wall Street, the key Dow Jones Industrial Average also took its biggest tumble since the GFC, careering downward by 7.8 per cent.

Gripped by panic selling in early trade, the market fell rapidly, triggering "circuit breakers" that meant trading was briefly suspended.

Saudi Arabia's dramatic move to flood the world with cheap oil sent the New York stock exchange and markets around the world into freefall.

Global oil prices suffered their worst percentage losses since the start of the 1991 Gulf War.

Just five minutes after the opening bell, the carnage was so bad that Wall Street went into an automatic trading halt for 15 minutes.

The S&P 500, already down 12 per cent from its late February high, fell 7.6 per cent while the Dow Jones industrial average fell 2000 points, down 7.8 per cent.

It was the worst ever intraday decline for the Dow.

 

The crash was the worst for US stocks since December 2008, when the country was still reeling from the collapse of Lehman Brothers and the housing crisis that dragged the economy into a recession.

Wall Street operators said the combination of the oil price crash and fears over coronavirus were simply too much for world markets to cope with.

"The oil price collapse adds a new dimension for fear and uncertainty," said David Bahnsen, chief investment officer at the Bahnsen Group. "This is very, very, very bad," another trade said. "When two crises collide into each other, it's never good."

World markets are being battered by uncertainty as increasing lockdowns threaten supply chains.

Oil prices were down as much as 30 per cent after Russia rejected a proposal from OPEC to cut back on global oil production by as much as 1.5 million barrels a day. That vote was seen as an economic attack on Saudi Arabia, which retaliated by increasing its own production causing the price of oil to nosedive.

 

US President managed to see the upside: "Good for the consumer, gasoline prices coming down!" he tweeted.

But many commentators said tumbling oil prices would be devastating for oil companies and global markets, which have already been ransacked by coronavirus panic.

Many analysts and professional investors say they expect big swings to continue to dominate the market as long as the number of new virus cases is accelerating.

Global markets were cratered. Japan's Nikkei closed down more than 5 per cent, while Hong Kong's Hang Seng index lost more than 4.2 per cent. European markets were tumbling more than 7 per cent across the board.

"We are in uncharted territory now," according to Hubert de Barochez, markets economist at Capital Economics.

The benchmark for Italy, where the industrial and financial heartland was put in lockdown, fell 11 per cent.

 

A market trader talks on his phone in front of New York Stock Exchange. Picture: AP
A market trader talks on his phone in front of New York Stock Exchange. Picture: AP

"Markets want to hear that the global economy is open for business, and the problem is it isn't easy to say that going forward," said Patrick Chovanec, chief strategist at the investment advisory firm Silvercrest Asset Management.

The breathtaking plunge in US stocks came as Saudi Arabia launched an oil-price war that spooked global markets which were already incredibly fragile due to the coronavirus epidemic.

"The signal is Saudi Arabia is looking to open the spigots and fight for market share," said Matt Smith, director of commodity research at ClipperData. "Saudi is rolling up its sleeves for a price war."

The S&P 500 index dipped 7 per cent after the opening bell, triggering the first of three New York Stock Exchange "circuit breakers" that halted trading for 15 minutes.

Stocks resumed trading at 9:49am, after the New York Stock Exchange halted activity for 15 minutes. The market fluctuated throughout the day, but never really showed any signs of strong recovery.

 

A Wall Street trader watches the damage unfold. Picture; AP
A Wall Street trader watches the damage unfold. Picture; AP

US oil prices crashed as much as 34 per cent to a four-year low of $27.34 ($A41.31) a barrel as traders brace for Saudi Arabia to flood the market with crude in a bid to recapture market share.

Markets in Asia also fell alarmingly during Monday trading, while US futures recorded massive declines.

 

A broker scratches his head as he looks at his screens at the stock market in Frankfurt. Picture: AP
A broker scratches his head as he looks at his screens at the stock market in Frankfurt. Picture: AP

TRADING HALT TRIGGERS

Wall Street has a series of in-built "circuit breakers" that kick in to halt trading if there are dramatic declines in the S&P 500 index. These are designed to give the market a "time out" to try to settle everyone's nerves.

There are three levels:

* Level 1, when there's a 7 per cent decrease there will be an automatic 15 minute halt

* Level 2, when there's a 13 per cent drop there is another 15 minute halt

* Level 3, when there's a 20 per cent dip the market closes for the day.



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