Picture: 123RF/BACHO 12345
Picture: 123RF/BACHO 12345

London — Expectations of more central bank stimulus lifted world stocks to their highest in more than a week on Wednesday, helping investors look past a mounting coronavirus death toll and policymakers’ concerns for the disease’s economic impact.

Already, billions of dollars pumped in by Chinese authorities to cushion the blow from the outbreak, along with stringent containment measures, have boosting mainland China indices more than 1% and lifted Hong Kong shares.

European shares also turned around following a lacklustre open, with a pan-European benchmark up 0.6%. Wall Street futures reversed earlier losses to rise almost 0.5%. MSCI’s global index rose 0.3% and was 2.3% above Monday’s six-week lows.

Traders said European stocks also rose because a Chinese TV report said a research team at Zhejiang University has found an effective drug to treat people infected with the coronavirus. Reuters has not confirmed the veracity of the report.

“Traders have taken the view that the situation is now more likely to be under control and hopefully the spread of the health crisis will be stemmed,” said David Madden, market analysts at CMC Markets. The report and the stimulus expectations partly offset the news that the virus has killed 500 and sickened 25,000.

China and other countries have imposed travel restrictions to contain the outbreak, hurting manufacturing and tourism in the world’s second-largest economy and across its global supply chains.

Those concerns were reflected in signals from the Bank of Japan (BOJ)  and the Monetary Authority of Singapore that they were ready to ease policy. BOJ deputy governor Masazumi Wakatabe pledged not to rule out any option, including lowering already- negative interest rates.

The Singapore dollar fell to a near-four-month low after monetary authorities said the currency had room to weaken to offset the effects of the virus. Markets responded by pricing in policy easing at its April meeting.

The People’s Bank of China (PBOC) is also likely to lower its key lending rate on February 20 and cut banks’ reserve ratios, policy sources told Reuters.

“Clearly ... all the central banks are ready to act if necessary,” said Justin Onuekwusi, a portfolio manager at Legal & General Investment Management. “Lessons from the [2003] severe acute respiratory syndrome (SARS) outbreak also show the shock to the real economy tends to be temporary and markets do recover very quickly from such outbreaks.” 

The media report on the breakthrough drug also boosted some of the assets that are shunned during risk-off times. The Australian dollar hit a one-week high and the Swedish and Norwegian currencies also strengthened.

Brent crude oil bounced 2% on the day as well, after losing 16% since January 21 on fears the economic effects of the virus would curb demand. Crude also go support from expectations that Opec and its allies (Opec+) would cut output to prop up demand.

On bond markets, benchmark 10-year US treasury yields rose two basis points to 1.62%.

Reuters

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