SINGAPORE, March 3 — Global stocks and oil prices extended gains today as policymakers indicated their willingness to help ease the economic fallout from the coronavirus, while worries about the outcome of a call by Group of Seven heads kept a lid on gains.
Finance ministers from the group and central bank governors will hold a conference call today (1200GMT) to discuss measures to deal with the outbreak. But according to a source at the group, a statement it is crafting does not detail any fiscal or monetary steps.
The decision to hold a call came after the European Central Bank yesterday joined the chorus of central banks signalling a readiness to deal with the threat from the outbreak.
“This is a tug of war between hope and fear. Central banks are giving hopes with their potential stimulus but we haven’t seen any firepower yet,” said Vasu Menon, senior investment strategist at OCBC Bank Wealth Management.
“The question is what they will do? Monetary policy is already very loose and interest rates are very low,” he said.
Earlier messages from the US Federal Reserve that it was prepared to act weighed on the greenback.
The improved sentiment helped US S&P 500 futures climb up as much as 1 per cent in Asian trade today but they trimmed gains to 0.1 per cent following news on the G7 draft statement.
European stock futures indicated a strong open for European markets. Euro Stoxx 50 futures and German DAX futures both added 0.8 per cent while FTSE futures were up 0.7 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.7 per cent, paring the day’s gains but still marking the second straight session of rises.
“Barring any further deterioration of the coronavirus outbreak, we believe that the global cyclical recovery is likely to gain further momentum,” Schroders’ Asian multi-asset team said in a report.
“This is likely to benefit stocks with higher leverage to global growth, as stronger earnings could support dividend growth.”
Money markets
Japan’s Nikkei lost steam and closed 1.2 per cent lower after short-covering ran its course and as the yen firmed on the dollar, but South Korea’s Kospi rose 0.4 per cent.
Australian shares ended down 0.7 per cent, with bank shares easing after the central bank cut interest rates to a record low of 0.5 per cent, the fourth reduction in less than a year.
The rout in global stocks last week had already prompted Fed Chair Jerome Powell and Bank of Japan Governor Haruhiko Kuroda to flag a readiness to move.
Money markets are fully pricing in a cut of at least 0.25 percentage point to the current 1.50 per cent-1.75 per cent target rate at the Fed’s March 17-18 meeting as well as a 0.10 percentage point cut to the ECB’s key rate at March 12 meeting.
The frantic moves by policymakers reflected growing fears that the disruption to supply chains, factory output and global travel caused by the new epidemic could deal a serious blow to a world economy trying to recover from the US-China trade war.
Coronavirus is now spreading much more rapidly outside China than within the country, leading the world into uncharted territory, although the World Health Organisation has so far stopped short of calling it a pandemic.
Fed rate cuts
The rebound in global stock prices saw US bond yields roll back some of their sharp falls.
The 10-year US Treasuries yield retreated to 1.1174 per cent from a record low of 1.030 per cent marked yesterday. The rate-sensitive two-year notes yield jumped back to 0.8452 per cent from yesterday's 3 ½-year low of 0.710 per cent.
April Fed funds rate futures still price in about 80 per cent chance of a 0.50 percentage point cut this month and a total of almost 1 percentage point cuts by the end of year.
Expectations of Fed rate cuts prompted investors to cut their exposure to the dollar.
Against the yen, the dollar lost 0.5 per cent to ¥107.8 (RM4.19), slipping towards a five-month low of 107 set yesterday.
The euro was a shade higher at US$1.1146 (RM4.69), having hit an eight-week peak of US$1.1185 in the previous session.
The Australian dollar sat above a recent 11-year trough largely on short covering after the cut in interest rates.
Oil prices gained, although they came off day’s highs, after a jump of more than 4 per cent yesterday. US West Texas Intermediate crude futures rose 1.4 per cent to US$47.4 a barrel. Brent crude was up 1.16 per cent to US$52.43. — Reuters
