Stocks jumped on Wednesday after former Vice President Joe Biden made big profits on Super Tuesday. Investors also bet that the surprise cut in the Federal Reserve’s interest rate on Tuesday would provide additional impetus in response to the coronavirus threat. Analysts, however, warn that the post-trade-off sale underscores the Fed’s limited powers. “Their 50-basis-point bazooka is merely a pop-gun in the face of a virus that doesn’t care what the borrowing rate is” said one strategist.
Global stocks jumped on Wednesday after investors applauded former Vice President Joe Biden, pulling ahead in the Democratic presidential nomination race and betting that the Federal Reserve’s emergency fall on Tuesday foreshadows further stimulus to the government. Biden won in nine of the 14 states that held elections on Tuesday. His main rival, Sen. Bernie Sanders, won in three states and was expected to win in fourth. “Joe Biden’s strong performance on Super Tuesday will lift the financial markets with full relief,” says Chris Boschamp, chief market analyst at IG. Bernie Sanders may not be the kind of person to win the nomination now, reducing the risk of a radical(in american plan) occupation of the White House”, he added.
The stock surge followed a massive sell-off on Tuesday in response to a 50 basis point cut in the FED as investors feared the new coronavirus would be more devastating to the global economy than expected. Lowering interest rates fueled bond demand, bringing the 10-year Treasury yield below 1% for the first time in 150 years. The coronavirus, which causes the flu-like disease called “COVID-19” has infected over 93,000 people, killed at least 3,100 and has spread to 75 countries. This has interrupted international supply chains, reduced consumer demand and forced businesses in the affected regions to temporarily close or reduce their working hours.
Here’s the 10:30 Market Overview in London (5:30 in New York):
European stocks increased, with the German DAX increasing by 1.2%, the British FTSE 100 increasing by 1.6% and Euro Stoxx 50 by 1.3%.
Asian indexes closed overall at higher levels. China’s Shanghai Composite rose with 0.6%, KOSPI in South Korea rose with 2.2% and Japan’s Nikkei with 0.1%. Hong Kong’s Hang Seng rose with 0.2%.
US stocks have been set to open higher. The futures underlying to the Dow Jones Industrial Average, S&P 500 and Nasdaq jumped with 2% to 2.2%.
Oil prices rose, with West Texas Intermediate up 1.2% at $ 47.70 a barrel and Brent crude up 1% at $ 52.40.
Analysts warned that Tuesday’s sales underscored the tightness of monetary policy, as lower interest rates are less to mitigate public health crises or alleviate disruptions in manufacturing and global supply chains.
“Investors are expecting central bankers to become the heroes that they are not meant to be” accordind Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said in a morning note.
“For the Fed and all of us, it’s a fact that their precious stock market is quite a concern,” says Michael Avery, senior Asia-Pacific strategist at RaboResearch.