A recovery in world stock markets and oil prices picked up pace on Tuesday, as global policymakers signalled a united front to address the economic fallout from the spreading coronavirus.
Europe’s main bourses surged more than 2.5% in what was shaping up to be the region’s best day since 2016 as dealers rediscovered their appetite for risk and jettisoned safer but lower-profit assets.
Wall Street futures were up about 0.8% too, after their biggest leap since 2009 on Monday — up 4% and 5% for the S&P 500 and Dow Jones Industrial Average.
The reason? The cavalry. Finance ministers from the G7 and central bank governors were holding a conference call to discuss measures to deal with the outbreak.
According to a source at the group, a statement it is crafting does not detail any firm fiscal or monetary stimulus plans, but for investors it was a reassuring signal at least.
“This (market rebound) is purely on expectations of central banks and governments coordinating their actions to mitigate the impact of the virus,” said Jefferies senior European economist Marchel Alexandrovich.
He said supportive words from central banks were exactly what investors wanted to hear, but added an important caveat.
“I think in the real world, fiscal policy needs to play a greater role. It needs to translate into action that filters down into the real economy”, such as giving firms and households payment breaks on loans until the situation improves.
The mild selloff in super-safe government bonds came after yields on benchmark U.S. Treasuries hit record lows in recent days as worries mounted about a potential global recession.
The decision to hold a G7 call came after the head of the European Central Bank, Christine Lagarde, on Monday joined the chorus of heavyweight central bank chiefs signalling a readiness to deal with the threat from the outbreak.
Earlier messages from the U.S. Federal Reserve that it was prepared to act continued to weigh on the dollar, having fuelled expectations of a sizable rate cut at its meeting in two weeks.
Against the yen, the dollar lost 0.4% to 107.95 yen, slipping towards a five-month low of 107 set on Monday.
Lagarde’s comments meant the euro was a shade lower at $1.1111, having hit an eight-week peak of $1.1185 in the previous session after a string of other top ECB policymakers said the bank was still assessing the situation.
The Australian dollar, which is seen as a proxy bet on China due to the raw materials it sells there, sat above a recent 11-year trough largely on short covering after its central bank cut interest rates earlier in the day.
Oil prices gained another 2% after a jump of more than 4% on Monday. U.S. West Texas Intermediate crude futures went to $48 a barrel while Brent crude stood at $52.9.
The improved sentiment helped U.S. S&P 500 futures climb as much as 1%. MSCI’s world stocks index was up 0.6% having scored its best day since 2011 on Monday after a roaring Wall Street pushed it up just over 3%.
Asia-Pacific shares outside Japan ended 0.8% higher, off earlier peaks but still marking the second straight session of rises.
“Barring any further deterioration of the coronavirus outbreak, we believe that the global cyclical recovery is likely to gain further momentum,” Schroders’ Asian multi-asset team said in a report.
“This is likely to benefit stocks with higher leverage to global growth, as stronger earnings could support dividend growth.”
This article originally appeared on Reuters.
