LONDON (Reuters) - World markets saw the worst of the coronavirus impact last week, and now that new cases in China have dropped, stocks continue to rise on the assumption the economic impact will be temporary and probably confined to the first quarter.
Wall Street’s main equity indices, Europe’s STOXX 600, Germany’s DAX and MSCI’s all-country stock index all set record highs on Tuesday. China reported that new cases of the coronavirus found on Tuesday were at their lowest since Jan. 30, and the country’s foremost medical adviser, Zhong Nanshan, said the epidemic might peak by the end of this month.
The S&P 500 closed up only 0.16% overnight, but the futures were up another 0.3% first thing and 10-year Treasury yields were inching higher.
U.S. Federal Reserve Chairman Jerome Powell’s congressional testimony offered little new on policy, and futures markets still expect U.S. interest rates will fall 35 to 40 basis points later this year.
Powell stressed the resilience of the underlying economy and gave no new guidance on the central bank’s gradual reduction of support for the repo market. He reprises his testimony to the Senate later on Wednesday. The yield curve between three months and 10 years steepened to a positive 4 basis points.
Wall Street’s VIX volatility gauge was just below its 200-day moving average. European Central Bank President Christine Lagarde and outgoing Bank of England Governor Mark Carney also gave no new signals on policy.
Two European Union officials said on Tuesday the coronavirus outbreak would have only a marginal impact on the EU’s economy, predicting the effect on global growth this year would be 0.2 percentage point or less.
Chinese stocks stretched their gains to seven days in a row on Wednesday, with shares in Shanghai adding 0.9%. Tokyo, Hong Kong and Seoul benchmarks were up almost 1% each. European stocks reached records with gains of about 0.5% at the open.
Brent crude oil prices rose above $55 per barrel. Gold and Japan’s yen edged lower. The dollar picked up steam again after Tuesday’s retreat, although euro/dollar held above four-month lows under $1.09.
Results from the Democratic primary in New Hampshire showed no clear front runner. Left-leaning Bernie Sanders won, but he and centrist Pete Buttigieg got equal numbers of delegates for the national nominating convention. Former favourite Joe Biden did poorly. Markets see the primaries so far as increasing the chances President Donald Trump will be re-elected in November.
Elsewhere, New Zealand’s dollar jumped almost 1% at one stage after the Reserve Bank dropped its easing bias and removed the chance of another interest rate cut from its forward guidance. The Swedish crown rose to a one-month high against the euro before the Riksbank’s latest policy decision.
Bitcoin held at a five-month high, extending this year's rally to almost 50%. Some attribute the gains to a 50% cut in the production of bitcoin due in May. The rule, written into the cryptocurrency's code, cuts the number of new coins awarded to miners.
In European corporate news, Kering rose 2% after posting higher-than-expected fourth-quarter sales, helped by Gucci, although it said the coronavirus may heighten uncertainties for the luxury goods.
Heineken rose 5% after it said it expects operating profit for this year to grow by a mid-single-digit percentage after 2019 earnings in line with expectations. It said its CEO plans to step down in the summer and will be replaced by the head of the company's Asia-Pacific region.
Paints and industrial coatings maker Akzo Nobel rose 1.5% although it said quarterly sales fell amid weak demand. ABN Amro fell 6% after it reported stable net income for the fourth quarter, missing analysts' expectations. Clariant rose 0.6% after it said its CFO was leaving for a new job at Maersk.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —