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Stocks Slump After Latest Stimulus Deal Stalls: Markets Wrap

Sarah Ponczek and Vildana Hajric

(Bloomberg) -- U.S. stocks started the week down as investors saw little progress on a congressional spending package to blunt the fallout from the coronavirus pandemic. Measures of corporate credit risk eased after the Federal Reserve announced a massive second wave of initiatives to support a shuttered American economy.

The S&P 500 closed lower, despite a late-session surge, after lawmakers failed to agree on a stimulus bill over the weekend and again fell short of the needed Senate votes for a deal on Monday. Tech shares outperformed, with the Nasdaq 100 eking out a small gain, as negotiations continued on Capitol Hill. Trading volumes remained above average.

The S&P is down almost 35% from its Feb. 19 record and marked its lowest close of Donald Trump’s presidency. The Dow Jones Industrial Average has lost almost all its gains since he was elected on Nov. 8, 2016.

“Fiscal is far more important than the Fed in stabilizing risk assets,” said Dennis DeBusschere of Evercore ISI. “That being said, as the Fed gets more creative, they can become much more relevant. They are going to buy everything.”

The central bank said it will buy an unlimited amount of bonds to keep borrowing costs low and will set up programs to ensure credit flows to corporations and state and local governments. The cost to insure against corporate defaults fell and bond ETFs eligible for Fed purchases jumped.

“The Fed has really rallied to do as much as it can to extend its reach, but I think at the end of the day, the markets recognize this requires a fiscal response,” said Nela Richardson, an investment strategist at Edward Jones. “Every time the Fed takes a strong step forward there’s a kind of, ‘Oh no, this is worse than anyone thought’ reaction in the market.”

The Stoxx Europe 600 fell as the continent’s leaders sought to impose more curbs on people’s movements and Italy began shutting most industrial production. Core European bonds climbed. Equities fell earlier across most of Asia, where India’s benchmark plunged a record 13% while the rupee sank to the lowest ever amid moves to lock down widespread areas of the country. Brent crude stabilized after its 20% decline last week; West Texas crude gained, as did gold.

Investors are beginning another dramatic week digesting slashed economic forecasts and news of Europeans struggling to curb the pandemic, with Italy and Spain reporting 2,000 deaths over the weekend between them. Warnings grew that a global recession is coming as cities from New York to Los Angeles all but shut down and cases rise rapidly outside Asia.

Morgan Stanley warned the epidemic could cause U.S. GDP to shrink a record 30% in the second quarter. Federal Reserve Bank of St. Louis President James Bullard said the country’s jobless rate may hit 30%.

Meanwhile, international air carriers continued to announce drastic measures to cope with the outbreak, with giants Emirates and Singapore Airlines Ltd. among the latest to slash flights, and jet maker Airbus SE withdrawing its earnings guidance.

Here are the main moves in the market:

Stocks

The S&P 500 Index fell 2.9% as of 4 p.m. in New York; the Dow Jones Industrial Average lost 3%.The Nasdaq 100 gained 0.2%.The Stoxx Europe 600 Index decreased 4.3%.The MSCI Asia Pacific Index dipped 3.4%.

Currencies

The Bloomberg Dollar Spot Index gained 0.4%.The euro gained 0.4% to $1.0728.The British pound slid 1.3% to $1.1481.The Japanese yen fell 0.3% to 111.28 per dollar.

Bonds

The yield on 10-year Treasuries declined 10 basis points to 0.75%.Germany’s 10-year yield fell five basis points to -0.38%.Britain’s 10-year yield decreased 14 basis points to 0.425%.

Commodities

West Texas Intermediate crude rose 3.9% to $23.51 a barrel.Gold climbed 3.7% to $1,553.97 an ounce.

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