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- Stocks recovered on Monday after central bankers promised to protect their economies against the coronavirus outbreak.
- US, Japanese, and British authorities said they would intervene as needed to provide liquidity and stabilize markets.
- Italian officials plan to spend 3.6 billion euros ($4 billion) to combat the virus’ economic impact.
- The rally may be premature as “there’s nothing really to be relieved about,” one analyst warned.
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Stocks rallied on Monday after a slew of central bankers vowed to shore up their economies as the novel coronavirus rampages across the world.
Federal Reserve Chair Jerome Powell pledged on Friday that the US central bank will “use our tools and act as appropriate to support the economy.”
Bank of Japan Governor Haruhiko Kuroda followed suit on Monday, proclaiming that the bank “will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”
European officials scrambled to calm investors as well. Italy’s economy minister said on Sunday that the government will spend 3.6 billion euros ($4 billion) to dampen the economic impact of the virus. Meanwhile, the Bank of England said on Monday that it will take “all necessary steps” to protect the British economy, The Guardian reported.
Coronavirus — which causes a disease named COVID-19 — has infected more than 89,000 people, killed at least 3,000, and spread to upwards of 60 countries. The epidemic has disrupted global supply chains, hammered consumer demand, and forced companies to close stores or reduce opening hours in affected areas.
The outbreak has hammered China’s economy, according to official purchasing managers’ index (PMI) data published last weekend. The manufacturing figure plunged from 50 in January to 35.7 in February, and the non-manufacturing reading dropped from 54.1 to 29.6 over the same period. A reading below 50 indicates a contraction in activity.
“These are not recessionary levels, but outright depressionary,” Michael Every, senior Asia-Pacific strategist at RaboResearch, said in a research note.
Here’s the market roundup as of 10:45 a.m. in London (5:45 a.m. in New York):
- European equities tried to hold on to gains, with Germany’s DAX up 0.1%, Britain’s FTSE 100 up 1%, and the Euro Stoxx 50 up 0.3%.
- Asian indexes closed sharply higher. China’s Shanghai Composite rose 3.2%, Hong Kong’s Hang Seng rose 0.6%, Japan’s Nikkei rose 1%, and South Korea’s KOSPI rose 0.8%.
- US stocks are set to open higher with futures underlying the Dow Jones Industrial Average and Nasdaq up about 1%, and S&P 500 futures up 0.6%.
- Oil prices climbed, with West Texas Intermediate up 1.9% at $45.60 a barrel and Brent crude up 2.2% at $50.70.
- The price of gold jumped 2.7% to $1,609 an ounce.
The broad recovery follows a devastating week for world markets, during which the S&P 500 delivered its worst performance since the 2008 financial crisis.
“Investors are ready to start licking their wounds from last week,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a morning note. “With the reassurance that the Fed will have their back covered, equity traders could be tempted to jump on the back of a bull this week.”
Other analysts argued the market recovery may be premature, and coronavirus could have knock-on effects.
“I can’t help but feel that a strong relief rally at the start of the week when, the reality is, there’s nothing really to be relieved about, is just putting us unnecessarily back into dangerous territory,” Craig Erlam, senior market analyst at OANDA Europe, said in a morning note.
“The worry is that the collapse in equity markets leads to problems in the real economy, such as tighter financial conditions, that creates a recession even if the impact from the virus is limited,” Neil Wilson, chief market analyst for Markets.com, said in a morning note.
The Fed’s raft of interest-rate cuts last year could also limit its ability to juice the US economy, Wilson added.
“The truth is the Fed is really short of ammo for the sort of crisis that this could become because they were too worried about placating the president and looked for inflation in all the wrong places.”