Ahead of expected stimulus measures, Asian shares surge

Finance ministers of developed countries are expected to discuss measures to help businesses affected by coronavirus.

Japan share market
The global economy is expected to suffer as governments take steps to control the spread of the coronavirus, so authorities are trying to help companies affected by the measures, encouraging investors to buy stocks [Issei Kato/Reuters]

Global shares and oil prices extended their rebound on Tuesday on mounting speculation policymakers around the world would move to ease the economic fallout from the spreading coronavirus.

The European Central Bank (ECB) on Monday joined the chorus of central banks signalling a readiness to deal with the growing threats from the outbreak.

Earlier messages from the United States Federal Reserve that it was prepared to act weighed on the US dollar against a basket of currencies.

The improved confidence supported US S&P 500 futures, which rose 0.5 percent in early Asian trade on Tuesday, a day after the S&P 500 gained 4.60 percent, the biggest gain since December 2018.

Japan’s Nikkei jumped 1.6 percent in early trade, but gave up much of those gains by midday, while MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.8 percent.

South Korea’s Kospi added 2.4 percent and Australian shares advanced 1.8 percent in advance of an expected rate cut by the Reserve Bank of Australia.

Hong Kong’s benchmark Hang Seng Index was 0.3 percent higher, while the Shanghai Composite Index jumped 1.3 percent.

The rout in global stocks last week had already prompted Federal Reserve Chair Jerome Powell and Bank of Japan Governor Haruhiko Kuroda to flag a readiness to move.

Money-market pricing shows traders now expect a 100 percent chance of a 0.25 percentage point cut to the current 1.50 percent-1.75 percent target rate at the Federal Reserve’s March 17-18 meeting as well as a 0.10 percentage point cut to the ECB’s key rate at March 12 meeting.

G7 finance ministers are expected to hold a conference call on Tuesday (12:00 GMT), sources said, to discuss measures to deal with the economic effect of the coronavirus outbreak.

“There are hopes that G7 countries will take some sort of coordinated actions to fight the virus, possibly including fiscal spending,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

The frantic moves by policymakers reflected growing fears that the disruption to supply chains, factory output and global travel caused by the new epidemic could deal a serious blow to a world economy trying to recover from the US-China trade war.

Coronavirus is now spreading much more rapidly outside China than within the country, leading the world into uncharted territory, although the World Health Organization (WHO) has so far stopped short of calling it a pandemic.

In the US, six people in the Seattle area have died of the illness caused by the new coronavirus, as authorities across the country scrambled to prepare for more infections.

Risk returns

The rebound in global stock prices saw US bond yields roll back some of their sharp falls.

The 10-year US Treasuries yield retreated to 1.155 percent from a record low of 1.030 percent marked on Monday. The rate-sensitive two-year notes yield jumped back to 0.903 percent from Monday’s three-and-a-half year low of 0.710 percent.

Still, the 10-year and two-year yields are down by about 40 and 50 basis points, respectively, from about two weeks ago.

April Federal Reserve funds rate futures still price in about 80 percent chance of a 0.50 percentage point cut.

Expectations of Federal Reserve rate cuts prompted investors to cut their exposure to the dollar.

Against the yen, the dollar traded at 108.31 yen, off a five-month low of 107 set on Monday.

The euro stood at $1.1139, having hit an eight-week peak of $1.1185.

The Australian dollar fetched $0.6533, about a cent above an 11-year low of $0.64345 set on Friday.

Australia’s central bank is widely expected to cut the policy interest rate to 0.5 percent from 0.75 percent, already at a record low.

Oil prices bounced back further after a jump of more than 4 percent on Monday, reversing an early decline to multi-year lows.

Hopes of a deeper output cut by the Organization of the Petroleum Exporting Countries and central banks’ policy measures countered fears of slower growth.

US West Texas Intermediate (WTI) crude futures rose 2.7 percent to $48.01 a barrel, up sharply from Monday’s low of $43.32 a barrel, which was the lowest since December 2018.

While the coronavirus continues to dominate investor attention, the focus has also swung to Super Tuesday in the US, the biggest day in the Democratic primary elections to choose a challenger to President Donald Trump.

Source: Reuters