Stocks rally runs out of gas as oil rebounds

A rally in global stocks ran out of steam on Tuesday despite a jump in Chinese factory activity providing a surprise boost for the virus-hit global economy, while oil prices rebounded from 18-year lows.

Asia stocks picked up the baton from a rally Monday that saw all three of Wall Street's main indices jump more than three per cent.

That carried through to Europe, where gains averaged more than one percent in midday trading.

But as the open of trade approached in New York, European gains stocks bobbed in and out of positive territory.

Meanwhile, Wall Street opened lower, with the Dow giving up 0.5 percent in the first minutes of trading.

 

The dollar was higher, while the euro came under pressure from data showing inflation in the eurozone fell in March on a slump in energy prices caused by the coronavirus outbreak.

"China provided Western investors with a light at the end of the tunnel," said Connor Campbell, analyst at Spreadex trading group.

China's manufacturing sector saw surprise growth in March, having been mauled in February as the country went into lockdown to tackle the virus.

China's Purchasing Managers' Index, a key gauge of factory activity, jumped to 52.0 from a record low 35.7 the month before. Anything above 50 is considered growth.

China is slowly returning to a semblance of normal life after months of tough restrictions which locked up millions of people at home and brought economic activity to a near standstill.

"Chinese factory data overnight gave a flicker of hope that the world's second largest economy is firing back up, despite large parts of the world grinding to a halt," said City Index analyst Fiona Cincotta.

However, the World Bank has warned that fallout from the coronavirus pandemic could bring China's growth to a standstill, with even a best-case scenario seeing expansion slow to 2.3 per cent this year from 6.1 per cent in 2019.

Trillions of dollars pledged to offset the economic impact of the deadly virus have provided a semblance of stability to world markets, which were initially pummelled by the rapid spread of the disease, which has forced swathes of the planet -- and the economy -- into lockdown.

While the number of infections and deaths continues to rise, observers said traders appear to be getting used to the new normal, with some suggesting the sell-off in stocks may have seen its worst.

"As far as the coronavirus is concerned, China is the blueprint of what to expect, and once traders get the impression a country's crisis is at or approaching the peak, then more bulls might be coaxed back into the market," said David Madden at CMC Markets.

Meanwhile, oil prices rebounded from 18-year lows struck on measures to contain the coronavirus outbreak hitting demand and a price war between Russia and Saudi Arabia.

European benchmark Brent crude was up nearly 2.0 per cent in afternoon European trading, while the main US contract, WTI, was up almost 5.0 per cent. However market analyst Craig Erlam at OANDA called such a gain "nothing to get excited about.

With WTI trading just above USD 21, "we're still at extremely low levels and the situation doesn't give us cause for optimism.