Markets rebounded yesterday with world stocks, oil prices and bond yields all rising after China cut interest rates and banks’ reserve requirements in a bid to kick-start its wavering economy.
Wall Street opened over two per cent higher, recouping some losses from the previous day’s selloff, its worst in four years, which had put the S&P 500 and Nasdaq composite indexes in correction territory.
The dollar motored ahead against most major currencies, rising 1.2 per cent against the yen and 1.3 per cent against a basket of major currencies as the stimulus boost to China economy renewed focus on US economic data and a potential Federal Reserve rate hike this year.
Global markets had been pummelled on Monday after Chinese shares fell almost nine per cent, prompting investor calls for remedial action from authorities that grew louder overnight after the Shanghai Composite Index slumped.
Economists said yesterday’s response – a 25 basis point cut in key rates and 50 bps off the reserve requirement rate for large commercial banks – sent a clear signal that Beijing, which has stepped in several times this year to keep China’s growth on track, was still willing to intervene.
But as asset prices eased back following the initial euphoria, some questioned whether the measures would help.
While the previous day’s rush for safety reversed, US Treasuries prices fell yesterday as China’s move reduced investor anxiety about its economy and sparked selling of US government debt and other perceived safe-haven assets.
At 11.36am, the Dow Jones industrial average rose 381.28 points, or 2.4 per cent, to 16,252.63, the S&P 500 gained 47.21 points, or 2.49 per cent, to 1,940.42 and the Nasdaq Composite added 149.35 points, or 3.3 per cent, to 4,675.60.
The CBOE Market Volatility Index, at 29, was still elevated yesterday indicating lingering uncertainty but it was far below the previous day’s high of 53.3, which was the highest level since January 2009.
The pan-European FTSEurofirst 300 index closed up 4.4 per cent in its biggest one day gain in almost four years, recouping much of the five-per cent-plus lost the previous day when around €450 billion was wiped off the FTSEurofirst 300’s value.
MSCI’s benchmark emerging stocks index was up 2.5 per cent – on track for its biggest jump in just over two years after seven days of back-to-back falls.
Crude oil and metals markets also responded to Beijing’s move as China one of the world’s biggest commodities consumers.
US crude futures traded up 2.9 per cent at $39.33 per barrel, while Brent rose 2.3 per cent to $43.62.
But global oversupply and worries over the severity of the slowdown in China kept oil prices near the six-and-a-half-year lows they fell to on Monday, when the market slumped six per cent.
Copper , often considered a proxy for global economic activity, rose 2.1 per cent.