Stocks rebound tracking Covid-19 fallout

Japan’s economy suffered the worst quarterly contraction in more than five years, while Singapore cut its growth forecast for 2020 as the virus batters the city-state’s tourism and trade. — AFP pic
Japan’s economy suffered the worst quarterly contraction in more than five years, while Singapore cut its growth forecast for 2020 as the virus batters the city-state’s tourism and trade. — AFP pic

LONDON, Feb 17 — Stock markets mostly rebounded today, with investors assessing the extent of economic fallout from the new coronavirus, as the death toll in China from the epidemic rose and infections topped 70,500.

After Wall Street’s muddled performance on Friday and with US markets closed Monday for a holiday, traders turned their attention to some grim Asian economic news.

Japan’s economy suffered the worst quarterly contraction in more than five years, while Singapore cut its growth forecast for 2020 as the virus batters the city-state’s tourism and trade.

That comes after Europe’s largest economy Germany on Friday reported zero growth in the last quarter of 2019 and warnings from the International Monetary Fund that Covid-19 could damage global economic activity this year.

The euro today hit a near three-year low at US$1.0822 (RM4.86) in Asian trading hours, before recovering.

“The European Commission is assuming 1.2 per cent growth across euro-area in 2020 but markets appear to be less optimistic,” said Jasper Lawler, head of research at traders LCG.

As for China, while investors are comforted by a slowdown in new infections outside hardest-hit Hubei province in recent days, they might be less sanguine if the country’s economy takes a worse-than-expected hit, said Stephen Innes of AxiCorp.

“If it comes out bad enough for confidence to plummet, investors could quickly find themselves up the creek... without a paddle,” he said.

“Financial markets are not known for their rational thinking lately and given the 500 million or so mainlanders affected by the (Covid-19) quarantine... it’s also not hard to come up with more downside risks than upside ones right now,” Innes added.

A spokesman for China’s national health authority said the slowdown was a sign the outbreak was being controlled.

However, World Health Organisation chief Tedros Adhanom Ghebreyesus has warned it is “impossible to predict which direction this epidemic will take”.

Tokyo’s benchmark Nikkei 225 index closed down 0.7 per cent after the Japanese economy shrank 1.6 per cent in the three months to December from the previous quarter, even before the Covid-19 outbreak in China hit Japan, official data showed.

Mainland China’s benchmark Shanghai Composite Index closed up 2.3 per cent after the central bank announced measures aimed at cushioning the economy against the health crisis.

Today, the People’s Bank of China offered 200 billion yuan of one-year medium-term loans at a 3.15 per cent interest rate, 10 basis points lower than previously.

It also added 100 billion yuan to money markets through reverse repurchase agreements.

Wanlong Securities said the central bank’s steps amounted to an “interest rate cut in disguise”.

“The market got a boost from these supportive measures,” it said in a client note. — AFP

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