LONDON (Reuters) – European equities rose Wednesday after the Bank of England, along with other central banks, cut interest rates, hoping for more coordinated monetary and fiscal stimulus to counter the economic shock caused by the corona virus outbreak.
File photo: A street cleaner walks past the London Stock Exchange Group building in the City of London’s financial district as British stocks fall as investors fear the outbreak of the corona virus will halt the global economy in London, Britain, on March 9, 2020 could. REUTERS / Toby Melville
The BoE’s surprising move, which also announced measures to support bank lending on the day the UK budget was to begin spending, lifted stocks after a lackluster meeting in Asia.
Wall Street had recovered significantly on Tuesday, helping to offset some of Monday’s brutal losses. However, this did not improve sentiment on Wednesday as skepticism about the Washington-announced stimulus package to combat the epidemic increased.
By 0855 GMT, the FTSE 100 was up 1.73%, the Euro Stoxx by 2.67% and the German DAX by 2.65%.
US equity futures declined 1.2%, although this had risen from the 3% losses before the base rate cut by 50 basis points through the BoE to 0.25%. MSCI’s broadest index for Asia Pacific equities outside of Japan fell 1.05%.
With the Federal Reserve already cutting interest rates this month, the European Central Bank is under pressure to act at its Thursday meeting.
The BoE did not announce any new quantitative easing, but launched a new program to support lending to small businesses. The British finance minister will present his first annual budget shortly after 1230 GMT.
“It’s the only thing central banks can do in a public health crisis,” said Neil Dwane, global strategist and portfolio manager at Allianz Global Investors. “They’re trying to take the shackles off the banks to make sure we don’t get a money crisis.”
However, after a decade of exceptional monetary policy, investors are saying that the effects of a simpler policy have clear limits and that higher government spending will have to bear the brunt of political response to the economic consequences of the outbreak.
“The problem for the ECB is that there is even more pressure because it is facing the third largest economy in the eurozone – Italy – in an emergency,” said Dwane.
At the close on Tuesday, $ 8.1 trillion was recently deleted from the global stock markets.
The MSCI All-Country Index has lost more than 15% of its value since its peak on February 12th. It remained unchanged in early trading on Wednesday.
(Graphic: Markets hit hard by coronavirus worries – here)
The pound initially fell after the BoE’s decision before recovering. It was last up 0.5% to $ 1.2945 and flat against the euro at 87.49 pence.
The dollar continued to decline against the yen, Swiss franc and euro, weighed by uncertainty about the US government’s response and the decline in US government bond yields, although the greenback remained well above Monday’s level.
The euro rose 0.3% against the US currency to USD 1.1315.
Benchmark yields for 10-year US government bonds fell 4 basis points to 0.7129%, more than double the Monday’s record low of 0.3180%.
Market participants are largely assuming that the Fed will cut interest rates at the end of this month for the second time this month for the second time after surprising investors with a 50 basis point cut last week. [FEDWATCH]
German government bond yields rose after the BoE improved sentiment, while Italian yields – which had slipped into recession due to concerns that the country was at the forefront of a recession in Europe – fell as bets on the ECB -Increase incentives.
Italy is blocked to slow new infections.
Karen Ward, chief market strategist for EMEA at JP Morgan Asset Management, said all eyes are now on the UK finance minister to see if he announces a sharp increase in spending.
“If he does, it would be the first instance of a truly coordinated monetary and fiscal move. Investors can be comforted by the fact that policymakers are ready to use their full ammunition – and are one step closer to helicopter money, ”she said.
US crude reversed previous gains and fell 0.7% to $ 34.23 a barrel, while Brent crude fell 0.21% to $ 37.14 after Saudi Aramco said it had been instructed by the Department of Energy to increase its production capacity.
On Monday, the oil market crashed with futures, the largest percentage decline since the Gulf War in 1991, when Saudi Arabia and Russia openly clashed over supply management.
Spot gold, often bought as a safe haven in times of uncertainty, rose 0.54% to $ 1,657 an ounce. [GOL/]
Additional reporting from Marc Jones in London and Stanley White in Tokyo; Edited by John Stonestreet