Stock markets in Asia and Europe steadied on Monday following last week’s heavy sell-off, while US Treasury yields hovered around record lows, as investors pinned their hopes on central banks setting out measures aimed at cushioning the economic hit from the coronavirus outbreak.
An early rally in European equities fizzled in mid-morning trade, with the continent-wide Stoxx 600 flatlining. London’s FTSE 100 rose 0.9 per cent and Frankfurt’s Dax dropped 0.5 per cent.
That followed a broadly positive session in Asia, where China’s CSI 300 of Shanghai and Shenzhen-listed stocks closed up 3.3 per cent, chalking up its best one-day performance since May. Futures trade suggested no movement on the S&P 500 when Wall Street opens.
The mixed picture came as investors weighed the prospect of central bank easing against an increasingly bleak economic picture emerging from China and beyond.
The Bank of Japan followed the US Federal Reserve with a vow to fight the coronavirus. BoJ governor Haruhiko Kuroda on Monday promised to inject liquidity into markets and hinted at raising asset purchases.
But optimism around the prospect of co-ordinated international action to fight the disease was tempered as the OECD warned global growth could halve this year from its previous forecast and by Chinese manufacturing data that showed factory activity in February plunging to an all-time low.
“On the back of pledges of central bank support, equity markets have recovered this morning,” said Neil MacKinnon at VTB Capital. “The big question is whether the recovery is a ‘dead cat bounce’, to use the market jargon, or whether there is scope for fresh equity market declines.”
Brent crude was initially buoyed, with the international oil marker adding almost 3 per cent, before dropping back to trade up 1.3 per cent at $50.33 a barrel.
The yield on 10-year US Treasuries was down about 6 basis points — having fallen as much as 11 points to a record 1.0347 per cent in earlier trade. Yields fall as bond prices rise.
After the S&P 500 last week dropped 11 per cent, marking the Wall Street benchmark’s worst week since the global financial crisis, investors are betting that central banks will step in to try and mitigate the crisis that is threatening global economic growth.
Based on trading of Fed funds futures, investors think it is almost certain that the Federal Reserve will cut interest rates when it meets this month. Chairman Jay Powell has said the US central bank is “closely monitoring” developments.
Governments are taking action to support their economies during the virus outbreak. Italy said it would inject €3.6bn into its economy to mitigate the impact.
Analysts at Rabobank said that, regardless of the extent of the policy response, debt would remain an attractive investment option for investors, saying it was “a discernible near-term possibility” that the yield on the US 10-year could drop below 1 per cent.
“While the path for risky assets will be determined by the degree of activism on the part of global policymakers and an associated financially repressive impulse, the outlook for safe havens is unequivocally positive as either aggressive rate cuts provide support or a perceived insufficient policy response underpins a flight-to-quality bid,” they said.
Ken Cheung, chief Asia currency strategist at Mizuho, said traders were betting that a wave of fiscal stimulus by Beijing could soften the blow to the world’s second-biggest economy from the coronavirus.
“Optimism over a China growth recovery in March is being fuelled by the slowing pace of virus contagion and expectation for China’s strong stimulus,” he said.
Additional reporting by Robin Harding in Tokyo
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2020-03-02 11:29:00Z
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