China’s hint for more policy stimulus triggers stocks’ rally

A decline in the number of new coronavirus cases in China and mounting expectations for more policy stimulus boosted global equity markets on Wednesday and pushed the yen to nine-month lows as alarm caused by Apple’s revenue warning faded.

China posted the lowest daily rise in new coronavirus cases since Jan. 29, helping to lift the offshore-traded yuan to two-week highs against the dollar and pushing the yen, generally sought after in times of trouble, 0.5% lower.

Many view Chinese data on the virus with scepticism, but sentiment was lifted by a Bloomberg report that Beijing was considering cash injections or mergers to bail out airlines hit by the virus.

Those steps would come after this week’s cut in the medium-term lending rate, which has fed expectations for a reduction in the benchmark loan prime rate.

A pan-European equity index rose 0.6% to new record highs while futures for the US S&P500 and Dow Jones were up 0.25%. Nasdaq futures rose 0.4%.

Earlier, MSCI’s index of Asian shares outside Japan rose 0.5%. Japan’s Nikkei benchmark gained almost 1%, helped by the yen retreat.

Edward Park, chief investment officer at Brooks Macdonald, cited President Xi Jinping’s latest commitment to meeting 2020 growth targets.

“This in itself implies there will be more fiscal and monetary stimulus,” Park said. “That’s the real carrot for markets today.” Tuesday’s US Empire manufacturing survey also reassured investors the world’s biggest economy was in good shape, he said. That tempered worries caused by Apple’s warning it might miss sales targets due to pressure on supply chains.

Market fears still kept gold trading above $1,600 an ounce and US 10-year Treasury yields some 35 basis points below where they started 2020.

“There is some nervousness that economic data outside the United States is not amazing,” Park said.

China, the world’s second-largest economy, is struggling to get manufacturing back online after severe travel restrictions were imposed to contain the coronavirus. Japanese exports fell for the 14th straight month in January, data showed.

Growth worries were reflected in Tuesday’s dismal German investor sentiment survey and the US Treasury curve, where yields on three-month bills rose above yields on 10-year notes − an inversion that’s been a fairly reliable recession predictor in the past.

Three-month yields stood at 1.585%, above the 10-year rate of 1.5576%.

Investors are waiting to see what other growth-supportive measures could be introduced, particularly in the eurozone. They will also keep an eye on the minutes from the US Federal Reserve’s last meeting due later in the day. The Fed has signalled it’s keeping an eye on the coronavirus impact but does not plan to cut interest rates anytime soon. But some analysts reckon the Fed may have to change its mind.

“Given the risks we see to both growth and inflation falling short of expectations this year, we still expect the Fed’s view on the need for additional rate cuts to shift later this year,” NatWest analysts told clients.

The contrast between European and US data continued to pressure the euro, which fell below $1.08 on Tuesday for the first time in three years and now stands around $1.079..

The dollar index meanwhile inched up to a near five-month high buoyed by weakness in the euro and yen.

Brent crude futures rose 1.3% to $58.69 per barrel, a three-week high. Gold climbed towards a seven-year peak on Wednesday as concerns over the global economic impact of the coronavirus epidemic boosted safe-haven interest, while palladium resumed its record rally driven by concerns over a supply shortfall.

Spot gold rose 0.6% to $1,610.75 per ounce by 1116 GMT. The metal jumped to $1,610.80 earlier, its highest since Jan. 8, when gold hit its highest in nearly seven years. US gold futures rose 0.7% to $1,614.

“We’re still concerned that the recovery of economic activity might take a little bit longer in China,” Julius Baer analyst Carsten Menke said.

“On the ground, the impact seems to be stronger than what’s currently reflected in the stock markets. Gold investors are taking a closer look at these developments. That’s why prices are higher.” Bullion held firm even as European shares hit a fresh record high on a decline in new cases of coronavirus in China, and as the dollar rose to a more than four-month high against rivals.

Markets were alarmed on Tuesday after iPhone maker Apple Inc warned that its sales might fall because of slow ramp-ups in manufacturing facilities in China.

Gold in euros hit an all-time peak of 1,493.09 euros per ounce.

Investors were awaiting the minutes of the Federal Reserve’s Jan. 28-29 policy meeting, due at 1900 GMT. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Indicative of investor sentiment, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.6% to 929.84 tonnes on Tuesday, their highest since Nov. 11, 2016.

Elsewhere, palladium scaled a record high of $2,841.54 an ounce and was last up 5.1% at $2,771.39.

Reuters