World markets end three-day losing streak as lockdowns slowly end
The euro and eurozone bonds, which started the day strong, were pushed lower by court ruling, as oil markets jumped
London — Stock markets snapped a three-day losing streak on Tuesday and oil was on its longest run of gains in nine months as moves to ease major economies out of their coronavirus lockdowns lifted sentiment.
It was a turnaround from Monday, when bickering between Washington and Beijing triggered fresh selling, but traders have become used to sudden changes of direction in recent months — and there were more to handle in Europe, too.
The pan-European Stoxx 600 rose nearly 2% early on as a more-than 6% jump in oil prices boosted oil stocks, only to wilt on news that Germany’s top court had ruled the European Central Bank’s (ECB) quantitative-easing programme had “partially violated” the country's constitution.
The euro and the region’s government debt fell, too, though the court also said the ECB’s measures didn’t amount to monetary financing — where a central bank bankrolls the government — something banned in Germany.
The ruling also didn’t apply to the bank’s new coronavirus pandemic emergency purchase programme (PEPP).
“In practice, this should not restrict the ECB too much,” said Holger Schmiedling, chief economist at Berenberg. “However, the Karlsruhe [German court] has emphasised that there are limits to bond purchases. This could make it more difficult for the ECB to expand PEPP.”
In addition, eurozone producer prices fell the most in March since the 2008 financial crisis, Eurostat data showed. The drop was more than expected as the Covid-19 pandemic reduced demand for energy. Prices at factory gates in the 19 countries sharing the euro fell 1.5% month on month in March, and 2.8% year on year.
The euro traded down at $1.0889, stocks were up only half what they had been and a sell-off in bond markets pushed Italy’s government yields up past 1.83%.
That meant the dollar index pushed higher for a second consecutive day, though the big petrocurrencies, such as Canada’s dollar, Norway’s krone and Russia’s rouble, were all stronger or holding steady.
Several countries, including Spain, Italy, Nigeria, India, and Malaysia, are tentatively easing lockdowns and the governors of California and New York sounded more optimistic on Monday about businesses opening there.
Brent crude rose 6.5% to $28.97 a barrel, up for a sixth straight day, and US crude rose 9% to $22.24 a barrel for its fifth consecutive rise.
Analysts at Commonwealth Bank of Australia said the structure of the oil price rises, with bigger gains in nearer-dated contracts, suggested expectations of more production cuts and a restoration of fuel demand later this year.
They added, though, that this meant prices are unlikely to recover their big declines since the start of the year.
“From a very top-down perspective, markets are reacting positively to the measures governments and central banks have taken,” said Alistair Wittet, a European equity portfolio manager at Comgest. “But we are still to see what the full economic consequences of all this be ... the real test will be when the markets start opening up and governments and central banks start withdrawing [their support].”