Stock markets rallied worldwide on Wednesday as the US Congress prepared to approve an incredible stimulus package to help the world’s biggest economy withstand the Covid-19 pandemic.
German lawmakers were not idle either, as they laid to rest a decade-long constitutional commitment to balance the budget to fight the virus.
In New York, the Dow Jones index was up by 5.5 percent in afternoon trading, while London and Paris closed with gains of 4.5 percent.
Frankfurt was the outlier, though it too had added 1.8 percent by the end of the day as Berlin unveiled previously inconceivable measures worth almost 1.1 trillion euros ($1.2 trillion) to help Europe’s biggest economy weather the storm.
“The Berlin administration will suspend their debt brake to combat the Covid-19 crisis – the move shows us the German government means business,” remarked David Madden, market analyst at CMC Markets.
The dollar was mixed against other major currencies, while oil prices rose in late European trading.
“A bit of a funny old session but the positive sentiment is holding and we saw a very strong finish for the European session, cementing yesterday’s bullish rally in fine fashion,” commented Neil Wilson, chief market analyst at trading group Markets.com.
He noted the more muted gains in Frankfurt, and wondered: “Maybe they are having to deal with the emotional trauma of the death of the German balanced budget.
“The ‘Schwarze Null’ ist kaput,” Wilson concluded in reference to Germany’s cherished “Black Zero” policy of maintaining balanced books.
After European markets closed, Moody’s Investors Services estimated that overall economic activity of the G20 group of industrialised countries would contract by 0.5 percent this year.
But even as Covid-19 continues to spread, traders were nonetheless pretty upbeat after weeks of huge losses.
They were especially encouraged by what was happening in Washington, where congressional leaders came up with an emergency bill worth as much as $2 trillion — around 10 percent of US gross domestic product.
The bill is expected to pass the Senate as soon as Wednesday, but it was unclear whether the House of Representatives would approve it unanimously, potentially delaying enactment.
The measure would put cash directly into the hands of Americans, provide grants to small businesses and hundreds of billions of dollars in loans for corporations including embattled airlines, and expand unemployment benefits.
The prospect of such massive spending, combined with a Federal Reserve pledge to essentially print as much cash is needed, sent Wall Street into overdrive on Tuesday, with the Dow seeing its biggest rise since 1933.
On Wednesday, the Tokyo stock market added eight percent, with Japanese investors also relieved that the 2020 Olympics had been postponed rather than cancelled.
Unprecedented fiscal and central bank decisions are part of a pedal-to-the-metal reaction to a sudden financial shock caused by the novel coronavirus pandemic, which has locked down many countries and stunned the global economy.
Crude oil prices — which have been hammered by the outbreak’s impact on demand as well as by a supply tussle between Saudi Arabia and Russia — were back in the black.
Key figures around 1700 GMT
London – FTSE 100: UP 4.5 percent at 5,688.20 points (close)
Frankfurt – DAX 30: UP 1.8 percent at 9,874.26 (close)
Paris – CAC 40: UP 4.5 percent at 4,432.30 (close)
Milan – FTSE MIB: UP 1.7 percent at 17,243.68 (close)
Madrid – IBEX 35: UP 3.4 percent at 6,942.40 (close)
EURO STOXX 50: UP 3.1 percent at 2,800.14
New York – Dow: UP 5.5 percent at 21,853.62
Tokyo – Nikkei 225: UP 8.0 percent at 19,546.63 (close)
Hong Kong – Hang Seng: UP 3.8 percent at 23,527.19 (close)
Shanghai – Composite: UP 2.2 percent at 2,781.51 (close)
Brent North Sea crude: UP 0.5 percent at $27.28 per barrel
West Texas Intermediate: UP 1.9 percent at $24.47
Euro/dollar: UP at $1.0865 from $1.0782 at 2100 GMT
Dollar/yen: UP at 111.38 yen from 111.32 yen
Pound/dollar: UP at $1.1830 from $1.1754
Euro/pound: UP at 91.84 pence from 91.75