Markets rally as Fed's Powell pledges more ammunition to fight Covid-19 downturn – business live

Several European countries have lifted their ban on short-selling shares, in another sign that the panic created by Covid-19 has eased.

France, Italy, Spain, Belgium, Austria and Greece are all scrapping restrictions that prevented traders from selling shares they didn’t own (hoping to buy them back cheaper).

These bans were introduced in March, in an attempt to stem the alarming plunge in across stock markets.

French markets watchdog AMF says the markets are calmer now, although relatively edgy:

“Markets have partly reduced their losses, trading volumes and volatility have returned to levels that are still high compared to mid-February, however this reflects market participants’ uncertainties in the current context

The gold price has hit its highest level since 2012, amid predictions that the coronavirus outbreak will drive inflation up.

Gold bullion is up 1.2% this morning at $1,760 per ounce for the first time since October 2012.

It’s now jumped by over 15% since the market crash in March, driven by concerns that the huge stimulus measures from governments and central banks will be inflationary.

Neil Wilson of Markets.com explains:

Gold has emerged as a clear winner from the economic turmoil created by the pandemic.

There has been more energy about gold bulls today and prices have driven up to above $1760, the highest since Oct 2012. The peak in that month of $1795 is the next target for bulls.

Some economists argue that the pandemic will actually be deflationary – as demand will crumble as unemployment rises and firms go bust.

But goldbugs point to the massive expansion in the money supply, arguing that precious metals are the best protection against an inflationary glut.

The Covid-19 crisis will drag India into an unprecedented recession, Goldman Sachs has warned.

Goldman’s economists reckon India’s GDP will shrink at an annualised rate of 45% in the current quarter. It had previously predicted a 20% tumble, but has revised its forecasts after India extended its tough lockdown until the end of May.

Growth is expected to rebound sharply in Q3 (by an annualised rate of 20%), but India’s economy is still expected to shrink by 5% during the year.

European markets are a tranquil sea of green this morning, with the main indices up around 2%.

That’s a solid recovery from last week’s dips, which sent stocks to a three-week low.

Investors seem to be more hopeful about the global economic prospects, as governments try to lift lockdown restrictions.

But, the long-term damage of the crisis is unknown, as Barclays economist Christian Keller put it to clients (via Reuters):

“The economies of Europe and the U.S. likely bottomed out in April and are slowly starting to come back to life.

“However, incoming data from most economies highlight the depth of the contraction, raising risks of longer-term scarring that might undermine the recovery.”

The European Central Bank’s chief economist has warned that the eurozone economy might not recover from the Covid-19 slump until 2022.

Philip Lane told French newspaper El Pais that the coronavirus is having a ‘terrible’ impact, and sounded notably cautious about the future, saying:

In March the pandemic and the measures to contain it had already led to a substantial contraction of activity. This situation got worse again in April, where we saw a deep fall in activity everywhere. Now the picture is changing: some countries are beginning to loosen their lockdowns. How this will develop in the future depends a lot on how quickly the restrictions on economic activity can be eased, but also on how we adapt to living with the virus.

The speed at which the economy bounces back will then hinge on whether consumers are more reluctant to consume and businesses hold back on investment. From today’s perspective, it looks in any case unlikely that economic activity will return to its pre-crisis level before 2021, if not later.

This crisis is truly unprecedented, which makes it harder to predict the precise shape the recovery will take. What we know for sure is that the steepest fall will be in the first half of the year, and these terrible economic conditions should recover little by little, week by week, month by month.

A wave of optimism has lifted Britain’s FTSE 100 by 128 points, or 2.2%, in early trading in London.

Nearly every member of the blue-chip index is up, led by mining companies. Fresnillo (+8%), Glencore (+5%) and Anglo American (+5%) are all sharply higher, following Jerome Powell’s pledge to unleash more firepower if needed.

Travel companies are also being lifted, with British Airways parent company IAG (5%) and cruise operator Carnival (+5%).

Oil companies are also higher, lifted by rising crude prices — another sign that the markets are less pessimistic as some lockdown measures are lifted.

Jim Reid of Deutsche Bank says the success of these moves will be crucial:

It does feel like we’re in the middle of a phoney war at the moment with all of us waiting to see how efficiently the various economies are able to re-open given all the social distancing that will be required

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The economic cost of the coronavirus continues to mount. Overnight, Japan has followed Germany, France and Italy into recession as its Covid-19 lockdown hit economic growth.

Japan’s GDP shrank by 0.9% in January-March, the second quarterly contraction in a row.

Tom Learmouth, Japan economist for Capital Economics, says:

“The sharp fall in output in the first quarter suggests the spread of the virus had already dealt a significant blow to economic activity in March.”

Economists predict a much sharper contraction this quarter, helping to drag the world economy into its worst slump in decades.

America’s top central banker, Federal Reserve chair Jerome Powell has voiced his own concerns. He predicted that the US economy could shrink by 20% or 30% during the pandemic, with the recovery taking until late 2021.

But crucially for investors – Powell also told CBS’s “60 Minutes” that the Fed was certainly “not out of ammunition by a long shot” – and could expand its lending programmes if needed.

Here’s the key part of the interview, with CBS’s Scott Pelley:

PELLEY: Has the Fed done all it can do?

POWELL: Well, there’s a lot more we can do. We’ve done what we can as we go. But I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.

PELLEY: What would the Fed’s next steps be, potentially?

POWELL: Well, to begin, the one thing we can certainly do is we can enlarge our existing lending programs. We can start new lending programs if need be. We can do that. There are things we can do in monetary policy. There are a number of dimensions where we can move to make policy even more accommodative. Through forward guidance, we can change our asset purchase strategy. There are just a lot of things that we can do.

That’s just the excuse investors need to look through the current economic gloom.

Stocks have jumped in Asia-Pacific markets overnight, with Japan’s Nikkei up 0.5% and Australia’s S&P/ASX gaining 1%. European markets are also heading for a strong morning – with the FTSE 100 jumping 2% at the start of trading.

Traders are also watching Italy closely, where shops, restaurants and hair salons are reopening. The Italian government says it’s taking a “calculated risk” to put the country back on its feet. It’s a key test of whether consumers will return to the shops…and whether a second wave of Covid-19 infections can be avoided.

The agenda

• 11am BST: Bundesbank publishes monthly report on German economy
• 3pm BST: The US NAHB Housing Market Index