Stimulus hopes buoy global markets

London — World stocks markets regained a measure of calm on Monday as the hope for a raft of global interest rate cuts to soften the economic blow of the coronavirus steadied nerves and drove US treasury yields close to 1%.

After last week’s worst plunge for equities markets since the depths of the 2008 financial crisis, it was always going to be a wild ride.

Asia had initially dived again after China reported a record slump in factory activity but the region rallied to finish higher as bond yields sunk and talk of Opec supply cuts sent oil prices roaring up 3.5%.

Europe then made a blistering start. The FTSEurofirst 300 jumped more than 2%, putting it on course for its best day in more than a year and Wall Street S&P 500 and Dow futures were pointing to similar gains too.

“The market is coming back because there is perception that there will be a co-ordinated G7 policy response,” said Bluebay Asset Management’s head of credit strategy David Riley.

“We have Fed [US Federal Reserve] and ECB [European Central Bank] meetings coming up in the next couple of weeks. The Fed is the key one and it will be very hard for them to hold off [from rate cuts] if we are in a situation where the economic downsides are becoming more prevalent.”

The sheer scale of losses led financial markets to price in policy responses from the Fed and ECB to the Bank of Japan and the Reserve Bank of Australia.

Futures now imply a full 50 basis point cut by the Fed at its March 17-18 meeting while Australian markets are pricing in a quarter-point cut at the RBA’s Tuesday meeting.

On Monday, investors were encouraged by comments from Bank of Japan governor Haruhiko Kuroda who said the central bank would take necessary steps to stabilise markets.

A Bank of England spokesperson said it too was monitoring developments and assessing “potential impacts on the global and UK economies and financial systems”.

Bets that the Fed will be first to cut pushed the dollar to a one-month low against the world’s major currencies.

Individually, it was down at $1.1070 to the euro, flat on the yen at ¥108.08 and only made gains on the pound which wilted as what are likely to be fraught post-Brexit trade talks with the EU began in Brussels.

Just another manic Monday

MSCI’s broadest index of world shares rose 0.7%, up for the first time in eight sessions and recovering from Asia’s early dip, though the uptick barely offset its 10.4% tumble last week. Shanghai had added 3.3%.

The rapid spread of the coronavirus has led businesses globally to curb travel, send workers home and cancel events, hitting stocks in the aviation, gambling and tourism sectors.

The disruption to global supply chains and productivity has darkened the outlook for a world economy already struggling with the fallout of the US-China trade war.

“There’s no policy out there, frankly, that is going to be sufficiently large to offset the nature of what’s coming in terms of the virus. So we have to keep watching these new case numbers until these show signs of levelling off,” said ING’s Carnell.

Nevertheless, the bond markets were giving their view loud and clear.

Benchmark US 10-year treasuries hit a fresh record low of 1.0300% before shuffling back up to 1.1028% in European trading where German bunds were still -0.62%.

Analysts said a sustained market recovery depended on the rate of new coronavirus infections slowing outside China.

The epidemic, which began in China, has killed about 3,000 people worldwide as authorities race to contain infections in Iran, Italy, South Korea and the US.

Commodity markets were part of Monday’s global rebound. Oil prices bounced $1.5 a barrel on the hope of a deeper cut in output by Opec after earlier hitting multiyear lows.

Brent crude last traded at $51.3 a barrel and US crude at $46.2 a barrel, while industrial metals copper and nickel were 2% and 3% higher respectively and gold jumped 1.4% too after a mild drop last week.

Reuters