Global markets gain after China cuts tariffs
Equities enjoy support from Wall Street and China’s plan to halve tariffs on some US goods as investors fret about global economy
London/Tokyo — Stock markets across the world gained on Thursday, helped by record highs on Wall Street and a move by China to halve tariffs on some US goods as investors bet that the global economy would avoid long-term damage from the coronavirus.
Momentum from Wall Street spilt from Asia into European markets, gathering pace as investors assessed prospects for help to the global economy in the form of government stimulus and looser policy from central banks.
Europe’s Stoxx 600 index gained 0.4% to a record high, with a swathe of strong earnings reports helping. Indices in Frankfurt, Paris and London all made solid gains, rising between 0.3% and 0.7%.
Italy’s biggest bank UniCredit rose 5% after it posted a lower-than-expected fourth-quarter net loss.
China said on Thursday it would halve tariffs on some US goods, which could help improve negotiating conditions for a second phase of a trade accord after the two countries signed an interim deal in January.
The move, which came after China’s central bank eased policy last weekend, helped MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.6%. Blue-chip Chinese shares gained 1.9%.
US stock futures rose 0.5%, while the MSCI world equity index, which tracks shares in 49 countries, gained 0.5%.
Markets were already beginning to emerge from safe-haven assets and bet on the virus being a short-term shock, even while the human toll continues to grow.
“The market is looking through the near-term disruption to activity and seeing the potential for quite a sharp rebound later this year on the back of even looser policy,” said Tim Drayson, head of economics at Legal & General Investment Management.
Evidence of appetite for riskier bets was apparent in currencies, where China’s onshore yuan climbed 0.2% to its strongest level since January 23 after the tariff cuts were announced. The Australian dollar also gained.
The Japanese yen, considered a safe haven, slipped to a two-week low against the dollar.
Bond yields also rose. The 10-year US treasuries yield climbed to 1.672% from a five-month low touched on Friday. Eurozone bond yields told a similar story, with German bund yields climbing to their highest in almost two weeks.
Another 73 people on the Chinese mainland died on Wednesday from the virus, the highest daily increase so far, bringing the total death toll to 563, the country’s health authority said on Thursday.
Statistics from China indicate that about 2% of people infected with the new virus have died, suggesting it may be deadlier than seasonal flu but less deadly than severe acute respiratory syndrome (SARS), another reason that investors remain relatively calm.
Traders also cited vague rumours of a possible vaccine for the coronavirus as a trigger for Wednesday’s stock rally, even though the World Health Organisation (WHO) has played down media reports of “breakthrough” drugs.
“The coronavirus is continuing to spread so we need to remain cautious. But markets now appear to think that there will be a quick economic recovery after a short-term slump,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.
On Wall Street, the S&P 500 and Nasdaq had both reached record highs after jobs and service sector indicators suggested the economy could continue to grow this year even as consumer spending slows.
Elsewhere, major currencies were largely quiet. The euro stood flat at $1.0996, while the dollar against a basket of six major currencies slipped a fraction to 98.262.
Oil futures rose for a second day amid investor optimism over unconfirmed reports of possible advances in combating the coronavirus outbreak in China, which could cause fuel demand to rebound in the world’s biggest oil importer.
Brent rose by 66c, or 1.2%, to $55.97 a barrel by 8.42am GMT, having risen 2.4% in the last session.
Still, it is down about 15% so far in 2020.
Copper, considered a good gauge on the health of the global economy because of its wide industrial use, showed some signs of stabilisation though it remained depressed overall.
Shanghai copper extended its rebound into the third day, rising 1.4% from 33-month low hit earlier this week.