LONDON (Reuters) - Global stock markets pushed higher again on Tuesday after another record-breaking surge on Wall Street, before two of the world’s most powerful central bankers speak later today and address how they may respond to China’s coronavirus outbreak.
Investors were encouraged by a decline in new cases of the virus on Monday in Hubei province, the epicentre of the outbreak, and across mainland China. That sustains the market assumption that the contagion will peak over the coming six weeks, leading to only a temporary first-quarter setback in the Chinese economy.
Underlining the reluctance of investors to sell out of equities and global risk assets in the interim, JP Morgan estimated that on current assumptions China’s annualised gross domestic product growth will slow to 1% in the first quarter, then rebound to as high as 9.3% in the second. The stimulus provided by Chinese authorities and others around the world should bolster that rebound.
U.S. Federal Reserve Chairman Jerome Powell delivers his semi-annual congressional testimony later on Tuesday. With money markets pricing in an additional Fed easing this year of around 40 basis points, even after the January employment report showed gains of more than 200,000, any comments he makes on insulating the U.S. expansion from the virus will be key.
European Central Bank President Christine Lagarde, meantime, addresses the European Parliament about the ECB’s annual report. With the German economy spluttering expected to take an outsize hit from China’s first-quarter lurch, signals about additional policy support from Frankfurt are also high on the agenda.
The differing prospects of the two economies has put pressure on the euro/dollar exchange rate over the past week, which dropped to a four-month low just above 1.09 earlier on Tuesday.
Wall Street’s S&P 500 jumped 0.73% to a record high Monday. Futures were up another 0.2% overnight and the ViX volatility gauge back below its 200-day moving average at 15%. U.S.
Treasury yields were higher, though the yield curve between three months and 10 years remained positive. With two-thirds of U.S. fourth-quarter corporate earnings now in, more than 70% have beaten estimates and the S&P 500’s aggregate annual profit growth is running at about 2.5%.
Shanghai stocks added 0.4% to end higher for the sixth straight day. The Hong Kong and Seoul benchmarks added more than 1% each, the latter aided by battery-maker stocks riding the electric car wave and the recent surge in Tesla’s stock. Tokyo was closed. European stocks opened about 0.7% higher.
In currency markets, China’s offshore yuan gained. The dollar gained and its DXY index reached its highest since October. Sterling hung just above two-month lows set before fourth-quarter UK GDP numbers and December industry and trade data were due for release.
The reports are likely to show Brexit-related weakness, but their impact may be softened by a post-election rebound in activity this year. Outgoing Bank of England Governor Mark Carney also speaks later.
Emerging-market currencies stabilised, with the rand and rouble rising along with the price of oil, up from more than one-year lows.
Turkey’s lira weakened despite Monday’s moves by authorities to cut off the supply of lira to offshore markets. President Tayyip Erdogan will make a speech later today in which he may comment on the conflict in Syria's Idlib after Turkish forces struck back against Syrian government targets following the death of five Turkish soldiers at a military base in the province.
In European corporate news, Daimler axed its dividend as 2019 profits more than halved, but its stock rose 3%. Michelin forecast slightly lower profits in 2020 even without the impact of the coronavirus crisis in China, and its stock fell 0.7%. AMS, which supplies sensors to Apple iPhone, fell 4% even after it reported fourth-quarter revenues above its own forecast.
Deutsche Telekom rose 0.1% in premarket trade after sources said a U.S. judge is expected to rule in favour of a merger of Sprint and T-Mobile. British retailer Ocado shares rose 1% after it forecast 15% to 20% revenue growth for 2020, offsetting worries about a 27% drop in 2019 earnings.
JD Sports rose 3% after Britain's competition watchdog said the company's takeover of rival Footasylum could leave shoppers worse off. Metro gained 1% after it reached a deal to sell its hypermarkets business; TUI jumped 10% as strong demand for holidays helped 2019 earnings, offsetting impact from 737 MAX groundings.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —