Mar 03, 2020: Stock markets were higher Tuesday but well below their peaks for the day as traders shrugged off a surprise US rate cut aimed at shielding the economy from the impact of the spreading coronavirus.
Oil prices also edged higher, while the dollar fell in value against its main rivals.
Earlier in the day, central bank pledges of action had already boosted shares that were hammered last week as major stock markets lost around 12 percent in value.
After an eagerly awaited conference call of G7 finance ministers left traders and analysts disappointed, the US Federal Reserve caught markets by surprise, cutting its key interest rate by a half point to a range of 1.0-1.25 percent.
A Fed statement said the bank “is closely monitoring developments and their implications for the economic outlook”, and it sent European markets up by around 3.0 percent.
In New York, the Dow Jones index gyrated after the Fed's announcement, before showing a sharp drop in midday trading as European markets closed with gains of around 1.0 percent, a modest result considering the afternoon's eventful ups and downs.
“The unexpected cut from the Fed could be viewed as a sign of weakness as it suggests the US central bank are desperate to pander to global equity markets,” said David Madden, an analyst at CMC Markets UK.
Others wondered whether the Fed had simply brought forward a rate cut that markets already expected later in March, and if the move indicated the US economy was weaker than most investors had thought until now.
“With just another 1.0 percent of room left before zero, the Fed has little room for manoeuvre should the economy deteriorate sharply now as a result of the virus spread or other factors,” said Fawad Razaqzada, an analyst at Trading Candles.
– 'Whatever it takes' –
AvaTrade analyst Naeem Aslam summed up market consensus at one point by saying: “The Fed has proved today that it is willing to do whatever it takes to keep the bull market alive.
“I think the flood gate is wide open,” he added.
But James Knightley, chief international economist at ING, spoke for many when he noted question marks about how effective monetary easing was going to be.
“We doubt today's policy action will trigger a meaningful boost to aggregate demand,” he said.
On energy markets, the price of Brent crude was modestly higher in London exchanges, with dealers still betting on major producers cutting output to address a predicted plunge in crude demand.
The dollar slipped against other major currencies as some traders quickly began to speculate about another Fed rate cut later this month.
– Central bank action –
Central banks from the US, Japan and Europe said they were ready to provide support with monetary easing such as interest rate cuts and cash injections to financial markets.
The Fed was the first top-tier central bank to act, but Australia and Malaysia had already cut borrowing costs earlier in the day, and Aslam at AvaTrade suspected the Canadian central bank would follow suit.
The Bank of England will meanwhile “take all necessary steps” to support the UK economy from coronavirus fallout, said governor Mark Carney.
“The Bank of England's role is to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary,” Carney said.
The deadly outbreak has shaken economic activity, with an index of Chinese factory activity falling to a record low last month, while a US survey of manufacturers came in below forecast, with expectations of worse to come.
And with demand for crude tipped to take a battering — particularly from crucial consumer China — OPEC is to hold an extraordinary meeting Thursday with other producers, led by Russia, to weigh its response.
The disease that began in China has killed more than 3,100 people and infected more than 91,000.
– Key figures around 1700 GMT –
- London – FTSE 100: UP 1.0 percent at 6,718.20 points (close)
- Frankfurt – DAX 30: UP 1.1 percent at 11,985.39 (close)
- Paris – CAC 40: UP 1.1 percent at 5,393.17 (close)
- EURO STOXX 50: UP 1.0 percent at 3,371.97
- New York – Dow: DOWN 1.4 percent at 26,327.72
- Tokyo – Nikkei 225: DOWN 1.2 percent at 21,082.73 (close)
- Hong Kong – Hang Seng: FLAT at 26,284.82 (close)
- Shanghai – Composite: UP 0.7 percent at 2,992.90 (close)
- Dollar/yen: DOWN at 107.31 yen from 108.25 yen at 2300 GMT
- Euro/dollar: UP at $1.1176 from $1.1143
- Pound/dollar: UP at $1.2814 from $1.2762
- Euro/pound: DOWN at 87.21 pence from 87.30 pence
- Brent Crude: UP 0.4 percent at $52.13 per barrel
- West Texas Intermediate: UP 0.9 percent at $47.15