Global markets stabilise as traders dip their toes back into equities
Investors regain their appetite for risk as they look past rising death toll from coronavirus outbreak
London — Global markets showed further signs of stabilisation on Wednesday as investors looked past a rising death toll from China’s coronavirus outbreak to tiptoe back into shares and out of safe-haven assets such as the yen and German bonds.
World stocks were nearly flat despite a 3% fall in Hong Kong, where trading restarted after the Lunar New Year holiday, and remained just 2% off recent record highs following Tuesday’s bounce on Wall Street that was aided by robust earnings from Apple.
Of the 104 US companies to report results so far, 68.3% have topped expectations.
European shares opened firmer after Tuesday’s 0.8% rise, which was driven by banks after encouraging results from Spain’s Santander, and Swedbank a day earlier.
Mainland Chinese markets remain closed, but Chinese equity futures traded in Singapore rebounded from two days of losses to rise 1.79%, the biggest gain in almost seven weeks.
“There appears to be more transparency, communication in terms of the virus, and that makes it easier to start assessing the economic fallout. So the markets have taken some comfort from that,” said Rainer Guntermann, a rates strategist at Commerzbank in Frankfurt.
He was comparing the picture with Beijing’s secretive stance during the 2003 sever acute respiratory syndrome (SARS) virus outbreak that enabled the pathogen to spread faster and claim more victims.
Risk aversion has not completely lifted, however, with the number of coronavirus fatalities now at 132 and 6,000 cases reported worldwide, there is the fear the outbreak could inflict serious damage on Chinese growth, already at three-decade lows.
A Reuters poll predicted China’s manufacturing sector stalled in January, after signs of recovery towards the end of 2019. Several Hong Kong-listed firms warned of hits to profits and Apple CEO Tim Cook warned of supply chain disruptions.
“Until the rate of cases starts to peak, markets are not likely to bounce,” said Sean Darby, global equity strategist at Jefferies in Hong Kong.
On currency markets, the offshore-traded yuan was little changed at 6.9620 to the dollar but held off a one-month low hit earlier this week. Australia’s currency, considered a China proxy because of trade and investment links, was also flat just off three-month lows.
The safe-haven yen was flat but traded above two-week highs touched on Monday while the dollar index too edged lower after approaching two-month highs.
The dollar’s next moves could be determined by the US Federal Reserve’s meeting later on Wednesday where the central bank should reiterate its on-hold stance.
But speculation has risen it could be shaken off autopilot by the virus, with money markets predicting one 25 basis-point rate cut in 2020 and a small chance of a second.
The fear of economic damage is reflected also in the US treasury yield curve where three-month yields briefly rose on Tuesday above 10-year borrowing costs — the so-called curve inversion that is seen as a fairly reliable recession signal.
As calm returns to markets, the curve has returned to normal, however, and Commerzbank’s Guntermann said pricing rate cuts at this stage were “ambitious”.
Treasury 10-year yields were about 1.63%, off three-month lows of about 1.57% hit on Tuesday while German bund yields also inched higher.
Wall Street futures were up about 0.25%, signalling a stronger open on a day that will bring earnings from 47 S&P 500 companies, including Facebook, Boeing, General Electric, Microsoft, McDonald’s and AT&T.
On commodity markets, crude futures rose for the second day after sharp falls triggered by the fear for economic growth and a fall in travel demand, with Brent crude up 1% on the day.
Gold, which had surged towards $1,600/oz on Monday, subsided to about $1,560.