/Stocks climb after Joe Biden wins big on Super Tuesday, but analysts warn the rate-cut selloff is a huge red flag

Stocks climb after Joe Biden wins big on Super Tuesday, but analysts warn the rate-cut selloff is a huge red flag

joe bidenAssociated Press/John Locher

  • Stocks jumped on Wednesday after former Vice-President Joe Biden won big on Super Tuesday.
  • Investors also bet that the Federal Reserve’s surprise rate cut on Tuesday would herald further stimulus in response to the coronavirus threat.
  • However, analysts warned the selloff after the rate cut underlined the Fed’s limited powers.
  • “Their 50-basis-point bazooka is merely a pop-gun in the face of a virus that doesn’t care what the borrowing rate is,” one strategist said.
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Global stocks surged on Wednesday as investors cheered former Vice-President Joe Biden pulling ahead in the race for the Democratic presidential nomination, and bet that the Fed’s emergency rate cut on Tuesday foreshadowed further government stimulus.

Biden won nine of the 14 states that voted on Super Thursday and was projected to win a tenth at the time of writing. His main rival, Sen. Bernie Sanders, won three states and was expected to win four.

“Joe Biden’s strong showing on Super Tuesday will have financial markets sighing with some, if not complete relief,” said Chris Beauchamp, chief market analyst at IG, in a morning note.

“Bernie Sanders might not be such a shoo-in for the nomination now, reducing the risk of a radical (in US terms) occupying the White House,” he added.

The stock rally followed a mass selloff on Tuesday in response to the Federal Reserve’s 50-basis-point cut to interest rates, as investors feared the new coronavirus would be more devastating for the global economy than they anticipated. The rate cut fueled demand for bonds, driving the yield on the benchmark 10-year US Treasury down below 1% for the first time in 150 years.

Coronavirus — which causes a flu-like illness called COVID-19 — has infected more than 93,000 people, killed at least 3,100, and spread to upwards of 75 countries. It has disrupted international supply chains, dampened consumer demand, and forced businesses in affected regions to temporarily close or reduce their opening hours.

Here’s the market roundup as of 10:30 a.m. in London (5:30 a.m. in New York):

  • European equities rose with Germany’s DAX up 1.2%, Britain’s FTSE 100 up 1.6%, and the Euro Stoxx 50 up 1.3%.
  • Asian indexes closed broadly higher. China’s Shanghai Composite rose 0.6%, South Korea’s KOSPI rose 2.2%, and Japan’s Nikkei rose 0.1%. Hong Kong’s Hang Seng slid 0.2%.
  • US stocks are set to open higher. Futures underlying the Dow Jones Industrial Average, S&P 500, and Nasdaq jumped between 2% and 2.2%.
  • Oil prices climbed, with West Texas Intermediate up 1.2% at $47.70 a barrel and Brent crude up 1% at $52.40.
  • The 10-year Treasury yield dropped to about 0.95%.

Analysts warned that Tuesday’s selloff underscored the limitations of monetary policy, as lower interest rates do little to mitigate public-health crises or alleviate disruptions to production and global supply chains.

“Investors are expecting central bankers to become the heroes that they are not meant to be,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a morning note.

“For the Fed, and for all of us, the fact that their precious equity market tanked is deeply concerning,” Michael Every, senior Asia-Pacific strategist at RaboResearch, said in a research note.

“Their 50-basis-point bazooka is merely a pop-gun in the face of a virus that doesn’t care what the borrowing rate is,” he added.

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