January 22, 2020 / 9:01 AM / a month ago

Daily Briefing: Markets rebound again after jolt from virus scare

LONDON (Reuters) - Much like the reaction to the Iran crisis earlier this month, world markets appear to have quickly shrugged off fears of an economic hit from the new coronavirus in China and have rebounded smartly from Tuesday's lows.

A tourist wearing a mask visits Tiananmen Square in Beijing, China January 22, 2020. REUTERS/Jason Lee

With the World Health Organisation expected to meet later to consider declaring an international health emergency, financial traders reckon China's authorities have acted quickly and transparently and previous such health scares over the past 20 years have had only a glancing hits to economic activity worldwide.

Also what look on charts like big macro market swings related to the similar SARS virus outbreak back in 2003 were exaggerated as they coincided with the U.S. invasion of Iraq and the related trepidation and relief over that.

What’s more, the rise of online retail over the past couple of decades is cited by some as muting some of the economic fallout from viral health concerns.

Although Wall St stocks closed marginally in the red overnight, U.S. stock futures were up about 0.5% first thing as Asia bourses rebounded. Good technology sector earnings from IBM overnight and ASML in Europe this morning helped the rebound.

Signs that U.S. President Trump is prepared to postpone any protectionist push against European autos also improved sentiment, as did signs that a row between Washington and Europe over taxing digital companies looks to have been parked for the rest of the year.

In Asia, Hong Kong’s Hang Seng jumped more than 1%, regaining about half of Tuesday’s losses. Shanghai ended up 0.4%. Tokyo’s Nikkei rose 0.7, helped by a retreat of the ‘safe haven’ yen and dollar/yen return back above 110.

China’s offshore yuan firmed after a steep slide on Tuesday. Australia’s benchmark equity index surged on to new record highs. And South Korea’s Kospi added more than 1%, helped by stronger-than-expected fourth-quarter GDP numbers there that reinforced an upbeat picture to world growth and hopes for rebounding trading following the U.S.-China tariff truce.

Gold prices gave back what had been only marginal gains made on the health worries yesterday. U.S. Treasury yields nudged higher.

In Europe, Italian government bond yields popped about 8 basis points higher first thing on reports Italy's Luigi Di Maio will step down as leader of the 5-star movement amid concerns for the stability of the government as a result.

Di Maio, who is also the government’s foreign minister, is expected to meet other ministers belonging to the anti-establishment movement later in the morning and is due to announce his resignation at a party meeting in the afternoon. Euro/dollar slipped to its lowest in almost a month first thing, but has firmed up since.

On the European corporate news front, tech stocks such as DAX-listed Infineon and SAP could find support after IBM beat expectations and semiconductor equipment maker ASML forecast double-digit sales and earnings growth for 2020.

A conciliatory tone on trade from Trump could also help. The U.S. President said at Davos he had "very good" talks with the European Union, but added a deal was not struck, and Washington would strongly consider auto tariffs.

Back to earnings, luxury label Burberry edged up its forecast for the full year but its stock lost almost 3% at the open. Fashion retailer Ted Baker fell only 2% at the open even after said its inventory on its balance sheet was overstated by 58 million pounds, more than double its preliminary estimates. Traders has expected a much bigger drop on the news.

In M&A, Alstom opened up 2% after a report said Bombardier is in talks to combine rail unit with the French group.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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