European stocks are losing their gains.
European stocks opened higher but slowly gave back those gains on Thursday, as investors appraised efforts by officials in the United States and Europe to shore up the world economy.
Elsewhere, oil futures gained, gold slipped in value, and the U.S. Treasury 10-year note, whose yield was below 1 percent two days ago, was about 1.16 percent — all signs that would normally suggest rising confidence among investors.
Still, other indicators suggested that unease lingered. Asian markets had another down day, and futures markets indicated that Wall Street would open lower. Wednesday was yet another dismal day on Wall Street, with markets falling 5 percent.
Investors were dealing with a flurry of news. Overnight, the European Central Bank unveiled a huge bond-buying program aimed at preventing economic calamity, and the U.S. Federal Reserve presented a plan to support money market funds, which are threatened when there is a rush for cash. U.S. officials also neared passage of stimulus efforts to keep the American economy running.
In Asia on Thursday, Tokyo’s Nikkei 225 index fell 1 percent. In China, the Shanghai Composite Index was also down 1 percent.
Hong Kong’s Hang Seng Index fell 2.6 percent.
South Korea was the biggest loser among major world markets, with the Kospi index falling 8.4 percent.
The Fed will offer emergency loans to money market mutual funds.
The Federal Reserve said late Wednesday night that it would offer emergency loans to money market mutual funds, its latest in a series of steps to keep the financial system functioning and prop up the economy as it spirals toward recession during the coronavirus pandemic.
Officials said they would establish a so-called Money Market Mutual Fund Liquidity Facility, which would be backed by $10 billion from the Treasury Department. That facility joins a similar lending program for banks, established earlier this week.
The Fed is trying to protect the financial system and insulate the broader economy, where short-term pain could turn into long-term suffering if credit crunches prevent companies from obtaining the cash they need to function, forcing them to lay off workers, delay payments to vendors and shutter plants.
Wall Street’s new reality, amid virus and market tumult.
Investors, corporations and trading clients are turning to Wall Street amid one of the most tumultuous periods in market history to borrow money, buy or sell assets, and limit losses on their holdings. But Wall Street itself is grappling with a challenge it never previously faced: how to protect employees from a worsening public-health threat while managing clients who need services around the clock.
As the week started, numerous financial services firms — from the investment bank Goldman Sachs to the private equity firm Blackstone to the hedge fund Point72 — were adopting emergency work policies as employees tested positive for coronavirus. As far away as Cape Town, the commodities analyst Jeffrey Christian, who had traveled there from New York on business, was in an emergency room with chills and a fever.
“Waiting to be tested for C19,” wrote Mr. Christian, the managing partner of the research firm CPM Group, in an email. “Woke up with nasty fever and chills today.”
On Wall Street, where the stock market’s daily plunges have been the most severe in 33 years and Treasury bond yields have hit new price floors, the metamorphosis from calm to apprehension is now well underway.
Germany’s business outlook hits a historic low.
A reliable predictor of German economic growth suffered its biggest plunge since eastern and western Germany reunited almost three decades ago.
“Companies’ expectations in particular have darkened as never before,” the Ifo Institute in Munich said in a statement. The institute’s monthly survey of how managers expect their business to develop, published on Thursday, has a good record in predicting the direction of Europe’s largest economy.
“The German economy is speeding into recession,” the institute’s statement added.
On Wednesday, another slide as virus fears gripped markets.
Financial markets reeled again on Wednesday, as the coronavirus continued its relentless spread, governments ramped up efforts to contain it and investors waited for lawmakers in Washington to take action on proposals to bolster the American economy.
Stocks did recoup some losses late in the day, as the Senate began to vote on a bill to provide sick leave, jobless benefits, free coronavirus testing and other aid. President Trump is expected to sign it. But when all was said and done, the S&P 500 fell about 5 percent, stocks in Europe were sharply lower and oil prices cratered.
The renewed selling showed how fragile any gains have become as long as the number of cases continues to grow at a staggering rate.
The turmoil on Wednesday was evident in other markets as well. The British pound fell to its lowest level in 35 years against the American dollar.
Some European countries are better prepared than others.
No European country is escaping the economic consequences of the coronavirus, but the pain won’t be divided equally.
Southern Europe, which bore the brunt of the last big economic crisis, will suffer the most. Countries like Greece and Italy depend heavily on tourism and are still suffering the lingering effects of the eurozone debt meltdown over the last decade, including austerity programs that left their health care systems ill prepared for a pandemic.
But even countries regarded as paragons of competitiveness, like Germany and the Netherlands, may turn out to have weaknesses that, until a few weeks ago, were regarded as strengths.
Germany’s automakers, for example, have dominated the luxury car business. But the virus exposed their dependence on sales in China, and now they are closing factories all over the region.
Any country with lots of small firms and self-employed people will suffer as well, because these businesses typically have thinner financial reserves to survive a sudden plunge in sales. Greece and Italy are examples, but so is the Netherlands.
Other countries may have hidden strengths. An economy with lots of companies that can deliver their services digitally, and where employees can work from home, should be relatively resilient. This could be Estonia’s moment; its capital, Tallinn, has a lively digital start-up scene.
Europe plans a bond-buying program to counter the economic fallout.
The European Central Bank said it would embark on an enormous wave of bond purchases intended to counter the “serious risks” to the eurozone caused by the coronavirus pandemic.
The bank will buy up to 750 billion euros, or $820 billion, in government and corporate bonds and other assets, pumping cash into financial markets deeply rattled by the pandemic.
The announcement came after an unusual late-night conference call among members of the bank’s Governing Council, which followed signs that bond investors were losing faith in Italy’s ability to repay its enormous government debt. If Italy’s borrowing costs reach unsustainable levels, the future of the eurozone would be at stake.
The bank said it would buy even more assets if need be.
“The Governing Council is fully prepared to increase the size of its asset purchase programs and adjust their composition, by as much as necessary and for as long as needed,” the bank said in a statement. “It will explore all options and all contingencies to support the economy through this shock.
Australia cuts rates and will try quantitative easing.
Australia’s central bank said on Thursday that it would cut its key interest rate to 0.25 percent to ward off a coronavirus-spurred recession. It will also begin buying government bonds, the first time in the country’s history it would use quantitative easing, or unconventional methods to boost money supply.
Sweeping travel restrictions and social distancing had led to “major disruptions to economic activity across the world,” said Philip Lowe, governor of the Reserve Bank of Australia, in a statement announcing the new policy on Thursday. “Together, these measures will support jobs, incomes and businesses through this difficult period and they will also assist the Australian economy in the recovery.”
The bank will also make $50 billion available to authorized banks to encourage lending to small and medium-sized businesses.
Australia has not in the past used quantitative easing, even during the 2008 financial crisis.
This is the second time in two weeks that Australia’s central bank cut its main interest rate. Two weeks ago it cut its benchmark rate by one-quarter of a percentage point to 0.5 percent.
The news came as the country experienced a steep uptick in coronavirus cases, with 565 confirmed as of Thursday. The Australian dollar also weakened on Thursday, briefly plunging to 55 cents against the American dollar. At the beginning of this year, it hovered around 70 cents to a U.S. dollar.
First came the buyback boom. Now comes the bust.
Major American corporations spent roughly $1.4 trillion dollars buying back their own shares over the last three years, according to Goldman Sachs.
Now, after a stock market crash that has pushed prices back to where they were in early 2017, almost all that money is gone, at least for the moment.
The penchant of American corporations for buying back their own shares — it is largely an American phenomenon — became a political football in recent years. The Trump administration sold its vast overhaul of the American tax system, which was signed into law in December 2017, as a measure that would supercharge capital investment from companies, increasing productivity and wages for workers.
Economists can debate how well it worked. Wages have risen. Business investment has tumbled. No one can prove the tax change is the reason.
But the tax overhaul left major American companies flush with cash, and set off a record amount of share buybacks by S&P 500 companies. Buybacks hit a record in 2018, with net buybacks accounting for roughly $600 billion in outlays from companies, according to Goldman Sachs. The full numbers for 2019 are still coming in but are estimated to be around $480 billion.
Defenders of buybacks say it is an efficient way for companies to return money to shareholders that they would not otherwise know how to invest efficiently.
Critics say the practice is merely a way to inflate share prices and burnish key metrics, such as earnings per share, which look better because buybacks reduce the number of shares a company has. They point out that companies can always pay shareholders with dividends, which are checks issued directly to stock owners, rather than by buying back shares.
Reporting and research were contributed by Isabella Kwai, Jack Ewing, Carlos Tejada, Heather Murphy, Matt Phillips, Jeanna Smialek, Jim Tankersley.