Stock markets retreat as nervous investors pocket week’s gains

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Stock markets on both sides of the Atlantic retreated Friday as investors banked profits from the week’s equities rally sparked by massive government and central bank action to bolster an economy battered by the coronavirus pandemic.

On Wall Street, the Dow Jones index lost more than 700 points in early business, while in Europe key indices were also deeply in the red – although still set for solid weekly gains.

“European markets have pulled back… with caution being the order of the day after such a good rally,” said Neil Wilson, chief market analyst at trading group Markets.com.

“Stimulus efforts have calmed markets” this week, Wilson said, noting however that investors were looking to take profits ahead of the weekend pause.

Earlier, Asian stock markets had managed to record more gains.

While the number of people contracting COVID-19 continues to escalate, the support measures which the G20 said amounted to $5 trillion, have given traders hope that the expected global recession will be sharp but short.

Even news that a record 3.3 million Americans claimed unemployment benefits last week — smashing the previous all-time high of 695,000 in 1982 – was unable to derail the more positive view.

Dan Skelly at Morgan Stanley Wealth Management said stocks, after being clobbered in recent weeks, were now showing signs of bottoming out.

“While we do believe this will be possibly the sharpest recession in history, it may also be the shortest, so there is room to be optimistic for a second-half rebound,” he told Bloomberg TV.

Support this week has come largely from a $2-trillion US stimulus bill that is making its way through Congress and is expected to be passed by the House of Representatives Friday before being signed off by President Donald Trump.

“For investors, this package should be good for US equities and other risk assets as it should leave US corporations in a better position to weather the economic downturn and thrive in the rebound,” said David Kelly, at JP Morgan Asset Management.

On Thursday, Federal Reserve chief Jerome Powell said the US central bank would continue to “aggressively” pump liquidity into the economy.

The Fed’s promise to effectively print cash has sent the dollar tumbling this week and it continued to fall mostly across the board Friday – but not against the euro which was weakened by Germany’s rescue package.

The upper house of Germany’s parliament on Friday approved almost 1.1 trillion euros ($1.2 trillion) to shield Europe’s largest economy from the impact of the pandemic.

– Key figures around 1335 GMT –

London – FTSE 100: DOWN 5.5 percent at 5,495.33 points

Frankfurt – DAX 30: DOWN 3.4 percent at 9,662.26

Paris – CAC 40: DOWN 4.0 percent at 4,360.26

EURO STOXX 50: DOWN 3.9 percent at 2,736.53

New York – Dow: DOWN 3.7 percent at 21,725.43

Tokyo – Nikkei 225: UP 3.9 percent at 19,389.43 (close)

Hong Kong – Hang Seng: UP 0.6 percent at 23,484.28 (close)

Shanghai – Composite: UP 0.3 percent at 2,772.20 (close)

Euro/dollar: DOWN at $1.0980 from $1.1031 at 2150 GMT

Dollar/yen: DOWN at 108.74 yen from 109.44 yen

Pound/dollar: UP at $1.2238 from $1.2204

Euro/pound: DOWN at 89.57 pence from 90.39 pence

Brent North Sea crude: DOWN 2.6 percent at $27.92 per barrel

West Texas Intermediate: DOWN 3.2 percent at $21.86