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Morning Note: Enough Firepower, Dead Cat Bounce?

U.S. stocks had the best day in almost a dozen years as investors rediscovered their appetite for risk with Congress closing in on an unprecedented spending bill to prop up the slumping economy. The dollar halted a 10-day winning streak.

The S&P 500 rebounded from the lowest level since 2016, notching a third straight Tuesday turnaround — and the biggest one-day gain since October 2008 — after starting the week with a rout. The Dow Jones Industrial Average rose more than 11% to clock its biggest advance since 1933.
Lawmakers are negotiating the final sticking points in a roughly $2 trillion stimulus bill to help the U.S. economy get through the coronavirus pandemic, and House Speaker Nancy Pelosi said she was hopeful a deal could be reached today.

The Stoxx Europe 600 Index also surged, led by health-care and industrial companies, even as data began to show the extent of economic damage to the region from the coronavirus pandemic. Benchmarks across Asia jumped, with Korea’s index soaring almost 9% after the government announced measures to stabilize markets.

Emerging-market stocks jumped alongside their currencies. Gold extended recent a recent surge and industrial metals rallied.

Early trading data on Wednesday, shows Japan’s Topix rose 5.3 per cent as hedge funds and leveraged retail traders covered short positions, taking the Tokyo benchmark’s gains for the week to 9 per cent. Australia’s S&P/ASX 200 rose 3.3 per cent while South Korea’s Kospi index gained 4.5 per cent. China’s CSI 300 added 2.5 per cent and Hong Kong’s Hang Seng was 3.1 per cent higher.

This brings hope to the local market at a moment when the Central Bank of Kenya announced it will seek help from the IMF & the world Bank for a stimulus package to help it fight the effect of slowed global economic meltdown due to the Corona virus pandemic. Although it’s early to tell when the sell off will stop, but a good day on global markets will hopefully replicate on frontier markets as soon as it becomes clear what their governments are doing to save their economies, with a focus on Central Banks.

At the moment, it’s a game of bazookas, tanks and all arsenal Central Bankers can pull against a new enemy, the Corona Virus, which has caused economies to stall everywhere it’s stops. For now, traders are adapting to a rapidly changing market as the spread of the virus threatens to plunge the world’s economies into a deep recession. In spite of all the support measures from central banks and governments to safeguard their economies, investors will continue to look for evidence of a slowdown in new cases before letting their guards down.

Question is, can they really solve the current situation and stop an impending global recession? Will the stock market hold the rally or is this a dead cat bound to collapse? Well, that’s a discussion for another day.

Here are the moves across major assets:
Stocks

  • The S&P 500 Index gained 9.4% as of 4 p.m. New York time.
  • The Stoxx Europe 600 Index increased 8.4%.
  • The MSCI Asia Pacific Index surged 4.9%.

Currencies

  • The Bloomberg Dollar Spot Index sank 0.7%.
  • The euro increased 0.4% to $1.0772.
  • The British pound climbed 1.7% to $1.1743.
  • The Japanese yen slipped 0.3% to 111.51 per dollar.

Bonds

  • The yield on 10-year Treasuries increased six basis points to 0.85%.
  • Germany’s 10-year yield advanced five basis points to -0.322%.
  • Britain’s 10-year yield rose five basis points to 0.479%.

Commodities

  • Gold increased 4.6% to $1,625.32 an ounce.
  • West Texas Intermediate crude gained 2.3% to $23.89 a barrel.

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