(ATF) Investor sentiment was broadly upbeat in holiday-truncated trade as the US Federal Reserve took additional actions to provide up to $2.3 trillion in loans to support the economy.
But sentiment was dampened as an oil producers’ proposal to cut output by around 10% was seen as insufficient.
In a video conference between OPEC members and other major oil producers it was decided to reduce overall crude oil production by 10 million barrels a day. That will start on May 1, for an initial period of two months.
After, oil prices weakened, with the WTI down 9.3%.
These oil production cuts were decided to offset the slump in demand following the fast-spreading coronavirus pandemic which has infected over 1.6 million people and claimed over 95,000 lives globally.
The US central bank measures included an offer of loans up to $500 million to local governments, $600 million in loans of at least $1 million to firms that have up to 10,000 employees or less than $2.5 billion in revenue, and purchase of recently downgraded junk bonds.
Christopher Wood of Jefferies & Co said that as for the outstanding private-sector dollar debt, aside from US non-financial corporate-sector debt of $10.1 trillion at the end of last year, other areas of potentially risky US debt are leveraged loans totalling $1.2 trillion and private credit of around $900 billion. This compared with $2.7 trillion in US commercial banks’ commercial and industrial loans.
“But this is not the end of the dollar debt story. There is also a total of $12.1 trillion of dollar debt owed by offshore borrowers … which is why a surging US dollar is an indicator of deleveraging pressures. Still if the Fed ends up being prepared to buy all this debt, none of that need be a problem! Remember that old Wall Street maxim: “Don’t fight the Fed!,” Wood said.
Meanwhile, the Nikkei 225 was up 0.79% and Korea’s Kospi index was 1.33% higher but China’s stock markets were lower as data showed factory gate prices fell amid deepening deflation. The CSI300 dropped 0.62% and the SSE Composite Index was 1% lower after National Bureau of Statistics data showed PPI declined in March from a year ago and CPI (inflation) rose at a slower pace.
“Driven largely by a sharp decline in oil and base metal prices, PPI deflation deepened to -1.5% y/y in March from -0.4% in February. We expect PPI to remain deeply in deflation territory in April, given the declining iron ore and core prices and still low oil prices despite some rebound,” Barclays analysts said in a note.
Markets in the US, most of Europe, Australia, Hong Kong and Singapore were closed on Friday due to a holiday.