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Stocks slip as investors await Trump's Hong Kong response

NEW YORK (Reuters) – Global stocks fell and safe havens such as bonds and the Japanese yen rallied on Friday as investors awaited Washington’s response to China’s national security law on Hong Kong amid rising tensions between the world’s two biggest economies.

China’s parliament on Thursday passed national security legislation for the city, throwing its freedoms and its function as a finance hub into doubt.

U.S. President Donald Trump said he would hold a news conference on China later on Friday. Trepidation about a further deterioration in Sino-U.S. relations, which have soured considerably through the COVID-19 pandemic, put investors on edge.

U.S. stocks followed European and Asian shares lower. The Dow Jones Industrial Average .DJI fell 180.15 points, or 0.71%, to 25,220.49, the S&P 500 .SPX lost 14.48 points, or 0.48%, to 3,015.25 and the Nasdaq Composite .IXIC dropped 4.66 points, or 0.05%, to 9,364.33.

In Europe, the pan-regional STOXX 600 index lost 1.30% and MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.59%.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.2%. Japan’s Nikkei .N225 retreated from a three-month high and the yen rose to a two-week high of 107.06 against the dollar, while bonds rose.

If the United States no longer thinks Hong Kong is sufficiently autonomous and no longer merits special treatment under U.S. law, the reaction would be a small downdraft, as the market should be expecting that, said Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York.

“But if you get further sanctions and something akin to walking back the Phase 1 trade deal, the concern has to be graver because now we have to worry about retaliation from China,” Abbasi said.

The Chinese yuan CNY= weakened in offshore trade. [CNY/]

Hong Kong’s Hang Seng index .HSI declined 0.8% and has lost about 3% in the two weeks since news of China’s security legislation broke. [.HK]

The yield on benchmark 10-year U.S. Treasury notes US10YT=RR fell 4.6 basis points to 0.6624%.

U.S. Federal Reserve Chair Jerome Powell was scheduled to speak at 1100 a.m. EDT/1500 GMT. The market’s focus will be on the central bank’s long-term plans, including the likely restart of large-scale bond-buying.

MAY MARCHES ON

Massive amounts of government stimulus offset reams of grim economic data to prop up stocks in May. The S&P 500 .SPX is up around 4% for the month and on track for its best May since 2009.

A rally in the risk-sensitive Aussie dollar AUD=D3 is slowing, but the currency has gained nearly 2% for the month and sits 20% above March lows.

MSCI’s All Country World Index .MIWD00000PUS, which tracks stocks across 49 countries, is on track for a 3.5% gain this week – its best weekly performance since April.

(GRAPHIC: Recovery on course? – here)

Optimism has grown as countries have lifted lockdowns, spurring hopes for a speedy economic recovery.

The number of Americans seeking jobless benefits fell for an eighth straight week last week and New York has outlined plans for re-opening.

The euro EUR= was headed for its best month since December as the European Union’s 750 billion-euro coronavirus recovery fund fueled optimism about the EU’s political future. [FRX/] It hit a two-month high of $1.1114 and last traded at $1.1119.

The dollar fell 0.366% =USD against a basket of currencies.

Spot gold XAU= added 0.8% to $1,731.92 an ounce. [GOL/]

U.S. crude CLc1 recently fell 0.33% to $33.60 per barrel and Brent LCOc1 was at $34.95, down 0.96% on the day. [O/R]

Both contracts are headed for their biggest monthly gains in years as production cuts and optimism about demand recovery led by China supported prices.

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Business

Stocks, euro rise on recovery hopes; U.S.-China rift lifts gold

NEW YORK (Reuters) – A gauge of global equity markets climbed on Thursday on optimism for a speedy economic recovery and a massive stimulus plan in Europe helped lift regional stocks and the euro, while gold rebounded on a safety bid on deteriorating U.S.-China relations.

MSCI’s gauge of stocks across the globe rose 0.46% but Wall Street ended lower after a late-session reversal on headlines that President Donald Trump would hold a news conference on Friday about China.

Markets are slowly realizing the escalating tensions between the U.S. and China is not going away and represent headwinds for the global economy, said Ed Moya, senior market analyst at OANDA in New York.

“There’s going to be some push back. No one was anticipating that in the immediate future,” Moya said. “It could derail some of the reopening momentum we’ve had.”

Oil futures rose, reversing earlier losses, on signs U.S. gasoline demand is increasing despite a big surprise build in crude inventories and worries that China’s new security law for Hong Kong could result in demand-dampening trade sanctions.

Gold pared earlier gains of 1% as rising stock markets dulled its safe-haven appeal, but the escalating U.S.-Chinese tensions kept bullion propped up.

China’s parliament approved national security legislation for Hong Kong that democracy activists say could erode the territory’s freedoms and jeopardize its role as a global financial hub.

Investors have largely turned a blind eye to renewed U.S.-China tensions and instead are focused on the reopening of business activity, Candice Bangsund, a global asset allocation portfolio manager at Fiera Capital in Montreal, said earlier in the session.

“Stocks have maintained that positive momentum largely reflecting optimism that growth will recover as COVID lockdowns are eased and economies progressively reopen,” Bangsund said. “Enhanced government stimulus announcements this week out of Europe and Japan have emboldened that risk-on trade.”

The number of Americans seeking jobless benefits fell for an eighth straight week last week, but claims remained astonishingly high.

In Europe, the pan-regional STOXX 600 index rose 1.64% to an 11-week high on the European Union’s plan to prop up the bloc’s coronavirus-hit economies with a 750-billion-euro ($828 billion) recovery fund.

The euro fell 0.04% to $1.1072, a two-month high. The dollar index fell 0.423%.

Stocks on Wall Street closed lower, as early gains in healthcare and technology stocks were overtaken by falling bank and consumer discretionary shares.

The Dow Jones Industrial Average fell 147.63 points, or 0.58%, to 25,400.64. The S&P 500 lost 6.4 points, or 0.21%, to 3,029.73 and the Nasdaq Composite dropped 43.37 points, or 0.46%, to 9,368.99.

Overnight in Asia, markets were subdued after U.S. Secretary of State Mike Pompeo warned Hong Kong no longer warranted special treatment under U.S. law.

MSCI’s broadest index of Asia-Pacific shares outside Japan ended flat. Shares in Hong Kong ended down 0.7% as Chinese shares managed to close in positive territory [.SS], while Japan’s Nikkei jumped 2.3%. [.N][.T]

Euro zone bond yields were stable, with Italian borrowing costs – a key European confidence indicator – edging toward eight-week lows. Safe-haven German bonds sold off slightly.

U.S. government debt yields rose as stocks gained, reducing demand for safe-haven bonds, before the Treasury is due to sell a record $38 billion of seven-year notes.

Benchmark 10-year notes rose 1.5 basis points to yield 0.6966%.

The U.S. Energy Information Administration said crude inventories rose 7.9 million barrels in the latest week, exceeding expectations, due to a big increase in imports. But gasoline stockpiles fell unexpectedly as refiners boosted output. [EIA/S]

U.S. crude futures rose 90 cents to settle at $33.71 a barrel while Brent rose 55 cents to settle at $35.29.

Saudi Arabia and some other OPEC oil producers are considering extending record-high output cuts until the end of 2020 but have yet to win support from Russia, according to OPEC+ and Russian industry sources.

U.S. gold futures settled up 0.1% at $1,728.30 an ounce.

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Business

Home trading triggers bank 'black hole' surveillance alerts

LONDON (Reuters) – Potential breaches of market rules have spiked since traders began working from home in March, drawing scrutiny from regulators and piling pressure on banks to plug “black holes” in surveillance systems, industry officials say.

With banks unable to check in person on the behaviour of traders working remotely, they have to rely on machines that flag any apparent bad behaviour or suspicious transactions made under the unusual coronavirus crisis working conditions.

“In your kitchen or spare bedroom there is no colleague to monitor what you are up to and what we are seeing across a number of clients is a spike in escalations,” said Erkin Adylov, CEO of Behavox, whose software is used by banks, hedge funds and asset managers in New York, London and Asia to monitor staff.

Behavox has seen an 18% rise in conduct being “escalated” or singled out for scrutiny among clients since March, ranging from swearing to more serious incidents like disclosing client names.

They have also included prohibited activities such as taking conversations private, using personal email and giving financial advice to family and friends, Adylov said.

“These kinds of breaches typically don’t happen, but right now there is a noticeable increase,” he said.

When the coronavirus crisis hit, regulators in Europe and the United States initially gave some leeway to home traders, such as easing a rule that all conversations be recorded.

But working from home must not mean a relaxation in surveillance and firms could hold retrospective reviews to focus on high risk areas, Britain’s Financial Conduct Authority said this week, adding it was aware of a surveillance alert surge.

Greenwich Associates said there has been a jump in “false positives” or potentially suspicious trades that must be reviewed, driven by record trading volumes during March.

The consultancy said one global banking client saw more than 35,000 false positives during just one trading day in March, up from 5,000 in a normal session, leading to delays in reviews by compliance teams.

“They normally review an alert on the same day, but in some cases it was two to three weeks later,” Danielle Tierney, senior analyst at Greenwich said.

Hong Kong’s Securities and Futures Commission said on Thursday that remote working policies due to the pandemic have caused an increase in operational risk and that a “regulatory conversation” was needed with financial firms.

Greenwich’s Tierney said firms that struggled to stay on top of surveillance will be under pressure from regulators to upgrade systems and will not be simply “forgiven” again for lapses next time round.

ALERT SPIKE

Tim Estes, Founder and CEO of Digital Reasoning, whose programmes monitor staff at global banks, said banks were still digging through backlogs from an “incredible spike” in alerts, hiring teams in cheaper locations to do initial reviews.

“They know that within the enormous backlogs there are likely incidents of insider trading or market abuse,” he said.

Rachel Sexton, head of consultants EY’s financial services forensic and integrity practice in London, said some processes have been harder to implement in lockdown, such as the control of inside information

Britain’s FCA this week told bankers to have adequate systems at home to stop inside information leaks.

“What we will see in the next couple of months is regulators pro-actively issuing more work-from-home guidance,” said Robert Santella chief executive of IPC Systems, a supplier of kit for traders working from home in the U.S. and Europe.

(The story is officially corrected after Digital Reasoning fixed title)

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Business

Europe cheers super-sized stimulus plan, U.S.-China tensions simmer

LONDON (Reuters) – European shares rose for the fourth straight session on Thursday and the euro perched at a two-month high, as businesses returning to work and a 750 billion euro EU stimulus plan outweighed rising U.S.-China tensions.

Asian markets had been subdued overnight after U.S. Secretary of State Mike Pompeo had warned Hong Kong no longer warranted special treatment under U.S. law, but there was no stopping Europe.

Traders diving back into the markets after Wednesday’s EU plan to prop up the bloc’s coronavirus-hit economies pushed the region-wide STOXX 600 index up 1% to its highest since early March.

The euro enjoyed the view at $1.1016, having risen to a two-month high. It also held at the near three-month high it had hit versus the neighbouring Swiss franc the previous day, while the dollar was largely quiet.

Euro zone bond yields were relatively stable too, with Italian borrowing costs – a key European confidence indicator – holding near eight-week lows and safe-haven German Bunds seeing another small sell-off.

“With the release now of the European Commission’s plan for COVID recovery, we see there being room for further positivity in Eurozone risk assets, even while the global sentiment is buffeted by China-related tensions,” Mizuho analysts told clients.

“This feeds directly into our expectations for European risk assets to outperform, which will be further helped by a likely expansion of ECB QE next week.”

Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan had ended flat, having been in positive territory earlier in the day.

Shares in Hong Kong skidded as much 1.75% before ending down a 0.7% as Chinese shares managed to close positive. [.SS]. Japan’s Nikkei had jumped 2.3% though U.S. stock futures lost momentum in Europe to trade only 0.1% higher.

The biggest risk to equities now looks to be the Sino-U.S. relationship, which is likely to worsen after Pompeo had said on Wednesday that China’s plan to impose new security laws in Hong Kong were “only the latest in a series of actions that fundamentally undermine” the city’s autonomy.

“All eyes remain on the U.S.-China relationship,” said Chris Weston, the head of research at Pepperstone, a currency broker. “This is a risk for markets… One questions if the equity markets are too complacent here.”

A punitive U.S. response to China on the issue of Hong Kong could result in a tit-for-tat reaction from Beijing, further straining ties between the world’s two biggest economies and hobbling global growth.

President Donald Trump has said he will announce a response to China’s policies towards Hong Kong later this week.

Yields on 10-year U.S. Treasuries rose slightly to 0.6966%. Although they are up from an all-time low of 0.4980% struck in March, they are still a whopping 120 basis points below highs seen in January.

China’s yuan meanwhile was near a record low of 7.1966 per dollar in international markets due to uncertainty over Hong Kong. In ‘onshore’ trade too, it was nearly at its weakest since the height of the U.S.-China trade war last September.

Commodity markets groaned. U.S. crude futures fell 3.2% to $31.76 a barrel, while Brent crude fell 1.73% to $34.14 per barrel as investors fretted about Trump’s response to China.

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Business

Japan shares reach 10-week high, look past Sino-U.S. tension

SYDNEY (Reuters) – Asian shares crept ahead on Tuesday following an upbeat session in Europe and further gains in U.S. stock futures as investors looked past Sino-U.S. trade tensions to a re-opening world economy.

Japan’s Nikkei .N225 led the way with a rise of 1% to its highest since early March when the economic impact of the coronavirus was just becoming clear.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.1% in early trade, while South Korea .KS11 rose 0.4%.

While Wall Street had been shut on Monday, E-Mini futures for the S&P 500 ESc1 were up just over 1% after EUROSTOXX 50 futures STXEc1 added over 2% on Monday.

European sentiment got a lift when a survey showed German business morale rebounded sharply in May as activity gradually returned to normal after weeks of lockdowns.

That helped offset the war of words between Washington and Beijing over trade, the coronavirus and China’s proposals for stricter security laws in Hong Kong.

“U.S.-China tensions continue to simmer in the background, but equity investors appear more interested on the prospect of economies reopening around the globe,” said Rodrigo Catril, a senior FX strategist at NAB.

“On this score, Japan ended its nationwide state of emergency, Spaniards have returned to bars in Madrid wearing masks and England will reopen some businesses on June 1.”

Bond investors suspect economies will still need massive amounts of central bank support long after they reopen and that is keeping yields low even as governments borrow much more.

Yields on U.S. 10-year notes US10YT=RR were trading at 0.65% having recovered from a blip up to 0.74% last week when the market absorbed a tidal wave of new issuance.

The decline in U.S. yields might have been a burden for the dollar but with rates everywhere near or less than zero, major currencies have been holding to tight ranges.

The dollar was a fraction firmer on the yen on Monday at 107.75 JPY= but well within the 105.97 to 108.08 band that has lasted since the start of May.

The euro was all but flat at $1.0900 EUR=, having spent the month so far wandering between $1.0765 and $1.1017.

Against a basket of currencies, the dollar was idling at 99.788 =USD, sandwiched between support at 99.001 and resistance around 100.560.

Analysts at CBA felt the dollar could break higher should China-U.S. tensions actually threaten their trade deal.

“Although not our central scenario, if the U.S. or China were to withdraw from the Phase One deal, USD would sharply appreciate while CNH, AUD and NZD would decline,” they wrote in a note to clients.

In commodity markets, gold edged down 0.1% to $1,727 an ounce XAU=.

Oil prices were supported by falling supplies as OPEC cut production and the number of U.S. and Canadian rigs dropped to record lows for the third week running.

Brent crude LCOc1 futures rose 12 cents to $35.65 a barrel, while U.S. crude CLc1 gained 67 cents to $33.92.

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Hong Kong tensions rattle world stock markets, oil tumbles

NEW YORK/LONDON (Reuters) – Oil prices tumbled and global equity markets fell on Friday as China’s move to impose a new security law on Hong Kong further strained U.S.-China relations and clouded economic recovery prospects.

China also dropped its annual growth target for the first time, adding to uncertainty about the fallout from the COVID-19 pandemic, boosting safe-haven investments such as U.S. Treasuries US10YT=RR and the dollar.

China said it would impose new national security legislation on Hong Kong, leading President Donald Trump to warn that Washington would react “very strongly” against any attempt to gain more control over the former British colony.

Emerging market shares slid -2.72%. Stocks in Europe closed mostly flat and on Wall Street finished mixed as investors prepared for a long weekend in the United States, the UK and elsewhere.

After trading lower most of the session, Wall Street trended upward in late trading, with the S&P and the Dow managing to finish higher.

“The market just keeps battling higher, it just wants to go higher,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “It’s anticipating improvement and we’ve seen all the bad news.”

Tensions between the world’s two largest economies have risen in recent weeks, with Washington ramping up criticism of China over the origins of the coronavirus pandemic, raising fears the rhetoric could crimp economic growth.

The U.S. Commerce Department said late in the session that it is adding 33 Chinese companies and other institutions to a blacklist for human rights violations and to address U.S. national security concerns.

The resurgent U.S.-China standoff weighed on oil prices.

“You have these doubts over China that is triggering this sell-off in oil, and it’s going to gain steam. If oil sells off, it’s hard to have a strong stock market,” said Ed Moya, senior market analyst at OANDA in New York.

Of major asset classes, crude oil has rebounded the most off the year’s lows on hopes world economies will soon recover from coronavirus-induced business shutdowns, he said, adding that he believed oil’s rally was overdone.

“There’s just too much uncertainty, and that’s going to likely keep on weighing on risk appetite,” Moya said.

MSCI’s all-country world stock index .MIWD00000PUS shed 0.40%, but the pan-European STOXX 600 index closed down just 0.3%.

On Wall Street, the Dow Jones Industrial Average .DJI fell 8.96 points, or 0.04%, to 24,465.16. The S&P 500 .SPX gained 6.94 points, or 0.24%, to 2,955.45, and the Nasdaq Composite .IXIC added 39.71 points, or 0.43%, to 9,324.59.

Earlier in Asia, Hong Kong’s Hang Seng index .HSI slid more than 5% to a seven-week low, its biggest daily percentage fall since 2015. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 2.7%; Japan’s Nikkei .N225 fell 0.8%.

Analysts said extensive central bank stimulus continues to underpin sentiment and buoy equity markets.

Japan’s central bank unveiled a lending program to channel nearly $280 billion to small businesses hit by the coronavirus. India slashed rates for a second time this year and the European Central Bank, in the minutes from its last meeting, said it was ready to expand emergency bond purchases as early as June.

U.S. crude CLc1 fell 67 cents to settle at $33.25 a barrel, paring about half earlier losses of more than 5%. Brent LCOc1 settled at $35.13, down 93 cents on the day.

The dollar index =USD rose 0.331%, with the euro EUR= down 0.42% to $1.0903. The Japanese yen JPY= strengthened 0.01% versus the greenback at 107.62 per dollar.

Benchmark 10-year U.S. Treasury yields fell 0.2 basis points to 0.6574% US10YT=RR.

Spot gold XAU= added 0.5% and U.S. gold futures GCv1 settled up 0.8% at $1,735.50 an ounce.

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Economy

MORNING BID-A turn for the worse

(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.)

* Note: There will be no Morning Bid on Monday, May 25, because of a public holiday in the UK. Things have taken another turn for the worse between the world’s two superpowers. Escalating rhetoric from President Donald Trump hit Wall Street yesterday, but Asian markets today are red all over following China’s proposal for a new Hong Kong law to ban sedition, secession and treason. That will almost certainly reignite protests in Hong Kong and drive another wedge with Washington.

The Hang Seng index plunged 5% at one point and the Hong Kong dollar slid the most in six weeks. Broader Asian shares lost 1%. World stocks are down around 0.7%, but that may pick up steam as a pan-European index is down 1.5% and Wall Street is expected to open weaker. The offshore yuan is approaching a three-week high beyond 7.14, and mainland blue-chip shares have fallen almost 2%.

Another headwind – China dropped its annual growth target for the first time since 1990, with Premier Li Keqiang warning of “unpredictable factors”.

Overall, the risk-off mood sent 10-year U.S. Treasury yields to a four-day low and the dollar index marching higher for a second day. Beijing’s failure to publish growth targets has sent commodity prices reeling, in turn inflicting losses of 0.7% to 1.3% on currencies such as the Aussie dollar, South African rand, Norwegian crown and Russian rouble. The euro is off yesterday’s two-week highs.

The setbacks have put paid to hopes of a market rebound as economies re-open. That COVID-19 risks remain alive was shown by India, which posted its biggest ever 24-hour rise in new infections after easing its lockdown. Without a vaccine, there seems little chance economic activity can normalise — Federal Reserve Chair Jay Powell warned again yesterday of a “downturn without modern precedent”.

In another sign of the times, India cut its benchmark repo rate by 40bp to 4% in an unscheduled move.

We get minutes from the European Central Bank’s last meeting — interesting given markets widely expect the bank to expand its emergency stimulus programme on June 4. All eyes are also on next week’s European Commission meeting, which will debate the Franco-German proposal for a joint recovery fund. The proposal, marking a huge change in the German stance, has already pushed Italian yields into their biggest weekly fall in two months.

The UK negative interest rate debate is being kept alive by miserable economic data, not least the record 18% crash in April retail sales. Sterling is again below $1.22 and seven-year UK borrowing costs have just gone negative.

“Real” gilt yields, read from inflation-linked debt, bear watching – these have collapsed 60 to 80 basis points since mid-March, with 10-year linkers yielding minus 2.9%, Tradeweb data shows.

In European corporate news, stocks exposed to Hong Kong — HSBC, StanChart and various luxury firms — are suffering. Burberry reported a 27% quarterly drop in comparable sales, and pulled its final dividend.

Abu Dhabi’s Etihad Airways is planning to lay off 1,200 employees as it considers permanently grounding its Airbus A380s and never operating the A350s it has ordered. Fiat Chrysler said auto sales in Brazil were down 70% to 75% in May versus a year ago. Carmaker Nissan is considering 20,000 job cuts.

On bonuses and dividends — Lloyds Banking Group investors rebelled against its policy for top bosses. United Utilities Group posted a 9% rise in full-year operating profit, but will review its 5-year dividend policy.

Equity-raising continues — On The Beach Group will raise around 20% of its share capital, while Time Out magazine is launching a share sale to cut debt.

In emerging markets, a big day for Argentina, which will mark its ninth sovereign debt default by missing a $500 million debt payment. But good news for Ukrainian bonds: the country signed a new $5 billion, 18-month stand-by deal with the International Monetary deal.

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Business

Euro gains on EU recovery-fund plan, oil wavers

NEW YORK (Reuters) – The euro and European government debt rallied on Tuesday, lifted by a Franco-German proposal to fund grants for regions hit hardest by the coronavirus pandemic, while oil traded mostly higher on growing demand as countries eased business lockdowns.

A gauge of global equity markets retreated late in the session after Wall Street skidded on a report from medical news website STAT that said Moderna Inc did not provide enough critical data to assess its potential COVID-19 vaccine.

Moderna shares closed down 10.4% after surging 20% on Monday when it said a small-early stage trial showed promising results, news that rallied equity markets around the world.

Gold prices rose as some investors sought the safe-haven asset on recession fears after a 30.2% decline in U.S. housing starts in April, the biggest percentage drop on record.

Permits for future construction tumbled, adding to data showing the pandemic will drive the deepest U.S. economic contraction in the second quarter since the Great Depression.

The euro rose 0.05% to $1.0918, paring gains on the Franco-German plan for a 500 billion euro European Union recovery fund was announced on Monday.

“The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery,” said Lee Hardman, currency analyst at MUFG.

Spanish and Portuguese government bond yields fell after a big drop in Italian yields on Monday.

Europe’s STOXX 600 index slipped 0.61% after the worldwide surge in equity markets on Monday. But MSCI’s gauge of stocks across the globe shed 0.21%.

On Wall Street, the Dow Jones Industrial Average fell 390.51 points, or 1.59%, to 24,206.86. The S&P 500 lost 30.97 points, or 1.05%, to 2,922.94 and the Nasdaq Composite dropped 49.72 points, or 0.54%, to 9,185.10.

Federal Reserve Chair Jerome Powell told U.S. lawmakers that the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March was “critical” to the Fed’s ability to expand credit to offset the economic blow from the coronavirus.

U.S. Treasury yields were lower. The benchmark 10-year yield slid 4.9 basis points to 0.6931%.

Crude oil prices traded higher most of the session but Brent eased toward the end.

U.S. crude rose 68 cents to settle at $32.50 a barrel, while Brent fell 16 cents to settle at $34.65 a barrel.

U.S. gold futures settled 0.6% higher at $1,745.60 an ounce.

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Business

Coronavirus: Markets surge as Europe’s reopening buoys recovery hopes

World stock markets have rallied sharply on growing hopes of economic recovery later this year – as some European countries worst hit by the coronavirus further ease lockdown restrictions.

In London, the FTSE 100 climbed by 4.3%, or more than 200 points, to take the index above 6,000 for only the second time since the outbreak sent equities into meltdown at the start of March.

The rally was in stark contrast to recent grim economic data, with Japan on Monday becoming the latest country to confirm it was in recession – following Germany and France.

In New York, the Dow Jones was more than 3% higher while markets in Frankfurt and Paris bounced by more than 5%, and international oil benchmark Brent crude surged 9% to more than $35 a barrel.

The upturn came after Jerome Powell, head of the US Federal Reserve, expressed optimism that America’s economy could begin to recover in the second half of the year.

Mr Powell told US channel CBS on Sunday that once the outbreak has been contained, activity should be able to rebound “substantially”.

He also suggested that the Fed was ready to add to the already-massive programme of interventions designed to help prop up the economy through the crisis.

“We’re not out of ammunition, not by a long shot,” the Fed chairman said.

The remarks were in contrast to a bleak assessment of the downturn made by Mr Powell last week – which had prompted a sharp sell-off.

They came as parts of Europe extended their reopening.

Among the businesses to resume were cafes and restaurants admitting customers in Italy, as well as churches in the country resuming public masses, and hairdressers in Belgium were also allowed to operate once again.

Meanwhile, a minister in tourism-dependent Spain said it planned to reopen borders to visitors by the end of June.

Russ Mould, investment director at AJ Bell, said the rally was fuelled by latest data showing new COVID-19 infections and deaths have slowed considerably in Europe, where countries first started easing their strict lockdowns in a limited way a month ago.

Mr Mould said those figures were “helping alleviate some of the concerns over a second wave in the pandemic”.

Chris Beauchamp, chief market analyst at IG, said that while the market bounce “might seem odd” amid the grim economic picture, investors were looking beyond the present into the third and fourth quarters of this year.

“This is supported by the lack of any real uptick in virus infections so far in those countries that have begun more expansive reopening programmes, which perhaps means the post coronavirus world will not be quite as different to the pre-virus world as many thought,” he said.

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Business

Equities slide, bonds rise, on Fed warning of prolonged recession

NEW YORK (Reuters) – Stock markets tumbled on Wednesday as fears about a second wave of coronavirus infections and warnings from Federal Reserve Chairman Jerome Powell that the U.S. faces a “significantly worse” recession than any since World War II weighed on investor sentiment and boosted safe-haven bonds.

Powell’s comments come as parts of the global economy are starting to reopen following a deep freeze aimed at curbing the spread of the virus that has pushed unemployment rates to their highest since the Great Depression. Benchmark equity indexes are up 25% or more since their March lows in anticipation of further government stimulus programs to help the global economy recover.

“Earnings season is largely behind us and we have entered the phase two of COVID-19 as de-confinement of economies begins, and that is creating a lot of uncertainties on a daily basis, which is weighing on markets,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

“We don’t think this is the start of a new correction. Markets went too far, too fast and this is the consolidation.”

MSCI’s gauge of stocks across the globe shed 1.53% following broad losses in Europe and Asia.

In midday trading on Wall Street, the Dow Jones Industrial Average fell 491.31 points, or 2.07%, to 23,273.47, the S&P 500 lost 51.55 points, or 1.80%, to 2,818.57 and the Nasdaq Composite dropped 139.32 points, or 1.55%, to 8,863.23.

Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

“We now have to see how this reopening plays out and there are a lot of risks to reopening,” said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

The mood was further soured by proposed legislation by a leading U.S. Republican senator that would authorize President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the coronavirus outbreak.

Safe-haven assets rose as investors positioned for an extended economic downturn. Benchmark 10-year notes last rose 17/32 in price to yield 0.6379%, from 0.692% late on Tuesday.

Oil markets, which have plummeted this year due to a combination of a collapse in demand and a supply glut, regained some ground on expectations of deeper production cuts.

U.S. crude recently fell 0.89% to $25.55 per barrel and Brent was at $29.65, down 1.1% on the day.

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