Unemployment claims in the United States have skyrocketed again, while the Federal Reserve has injected $3.6 trillion worth of additional stimulus to minimise the economic fallout of COVID-19.
The Australian dollar jumped to a one-month high of 63.4 US cents this morning as the record Fed stimulus weakened the greenback.
Meanwhile, Saudi Arabia, Russia and the world’s biggest oil producers have struck a deal to cut production by a record amount (10 million barrels per day), but that was not enough to prevent a further slump in oil prices.
Market snapshot at 8:00am (AEDT):
- ASX SPI futures +0.8pc at 5,442, ASX 200 (Thursday’s close) +3.5pc at 5,387
- AUD: 63.3 US cents, 50.8 British pence, 57.9 Euro cents, 68.64 Japanese yen, $NZ1.04
- US: Dow Jones +1.2pc at 23,719, S&P 500 +1.5pc at 2,790, Nasdaq +0.8pc at 8,154
- Europe: FTSE 100 +2.9pc at 5,843, DAX +2.2pc at 10,565, CAC +1.4pc at 4,507, Euro Stoxx 50 +1.5pc at 2,893
- Commodities: Brent crude -2.4pc at $US32.03/barrel, spot gold +2.3pc at $US1,683.82/ounce
The Australian share market is closed for the Easter long weekend, but might enjoy solid gains when it reopens next Tuesday.
It may follow a strong lead from Wall Street’s benchmark index (the S&P 500), which surged by 12 per cent this week — its biggest weekly gain since 1974.
Overnight, the S&P index added 1.5 per cent to close at 2,790 points.
The industrial-skewed Dow Jones index lifted by 286 points (or 1.2 per cent) to 23,719, while the tech-heavy Nasdaq rose 0.8 per cent to 8,154.
European markets also jumped. London’s FTSE and Germany’s DAX were up by 2.8 and 2.2 per cent respectively.
The spot price of gold also surged to a one-month high, around $US1,684 an ounce.
Global markets were propped up by hope the number of new coronavirus cases was slowing down and the latest announcement from the US central bank on further stimulus being pumped into the system.
Fed pushes deeper into uncharted territory
The Fed said it would allocate a massive $US2.3 trillion ($3.6 trillion) to further shield the US economy from the economic damage from coronavirus.
Rate cuts can’t cure COVID-19
Reserve Bank interest rate cuts will do little to keep Australia out of a deep recession if coronavirus becomes a severe pandemic, but there are some unconventional policies that could help save the economy.
It had already cut interest rates to almost zero and re-launched its quantitative easing program in March, pledging to buy an unlimited number of bonds.
Under its latest stimulus measures, the Fed will offer four-year loans, through the banks, to struggling American businesses.
This new “Main Street” facility will funnel up to $US600 billion in loans (of at least $US1 million) to companies that have up to 10,000 employees or less than $US2.5 billion in revenue.
Firms receiving the loans “must commit to make reasonable efforts to maintain payroll and retain workers” and not use the funds to refinance existing debt.
The central bank will also spend up to $US500 billion purchasing municipal bonds from local governments, which are on the front lines of the health crisis and are also facing a possible collapse in their tax revenue as unemployment spikes and businesses shut under tough social-distancing rules.
Many of these programs are due to lapse in September, but Fed chair Jerome Powell said the Fed would spend whatever it takes to get the pandemic under control and get the economy back on track.
“We are deploying these lending powers to an unprecedented extent,” Mr Powell said.
“We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.”
It was enough to make investors ignore the bad news — that 6.6 million Americans applied for unemployment insurance claims last week, according to figures released by the US Labor Department.
That brought the total to 16.8 million people who had lost their jobs in the past three weeks.
The economic fallout globally from the coronavirus will be far worse than SARS now that China is so critical to the global, and especially Australian, economy, writes Ian Verrender.
The record number of applications for unemployment benefits are the result of businesses such as restaurants, bars and other social venues being closed.
“In its first month alone, the coronavirus crisis is poised to exceed any comparison to the  Great Recession,” said Daniel Zhao, senior economist at Glassdoor, an online recruitment firm.
“The new normal for unemployment insurance claims will be the canary in the coal mine for how long effects of the crisis will linger for the millions of newly unemployed Americans.”
OPEC strikes record oil deal
The Organisation of Petroleum Exporting Countries (OPEC) and its allies agreed on Thursday to cut oil output by a record 10 million barrels per day (or 10 per cent of global supplies) for two months.
All members will reduce their output by 23 per cent, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd.
But the price of Brent crude tumbled by 2.5 per cent to $US32 a barrel. Its value has plummeted by half since the year began.
Investors are worried these supply cuts still won’t be enough to combat the unprecedented plunge in oil demand caused by the coronavirus pandemic.
OPEC+, which includes non-members like Russia, is also expecting the US and other producers to join in its effort to cut production (by 5 million bpd) and prop up prices to help deal with the deepest oil crisis in decades.
Global fuel demand has plunged by around 30 million bpd (or 30pc of global supplies) as steps to fight the virus have grounded planes, cut vehicle usage and curbed economic activity.
If an unprecedented 15 million bpd cut were to happen, it would not be enough to stop the world’s storage facilities quickly filling up.
And far from signalling any readiness to offer support, US President Donald Trump has threatened OPEC member Saudi Arabia, saying it could face sanctions and tariffs if it does not cut supply enough to help the struggling US oil industry.
“We are expecting other producers outside the OPEC+ club to join the measures, which might happen tomorrow during G20,” the head of Russia’s wealth fund (and one of Moscow’s top oil negotiators), Kirill Dmitriev, told Reuters.
On Friday Saudi Arabia will host a call between energy ministers from the Group of 20 major economies.