US equities coughed to life as the Congress agreed to spend $7.8 billion to combat the coronavirus on Wednesday. This was three times the amount suggested by President Donald Trump, a kind of surprise needed to boost the investor sentiment nowadays.
It is clear, investors around the world now believe that the monetary policy alone cannot tackle another financial crisis, given that the starting point for the interest rates is already extremely low and rock-bottom interest rates prove to be increasingly inefficient to fuel investment. This is especially true in Europe and Japan.
The Dow (+4.53%), the S&P500 (+4.22%) and Nasdaq (+3.85%) rallied on Wednesday, and demand in US equities remained strong in Asia sending the three major US stock futures 2% higher.
The US 10-year yield recovered past 1%, giving a positive spin to the US dollar. The ISM non-manufacturing index pointed that services in the US expanded at the highest speed in a year in February. The coronavirus outbreak had little impact on business surveys so far, how the hard data is impacted is yet to be seen.
Speaking of hard data, the ADP report showed that the US economy added 183’000 private jobs in February, better than 170’000 expected by analysts, but less than 209’000 printed a month earlier. Due Friday, the nonfarm payrolls are expected at 175’000, versus last month’s 225’000.
In Australia, the trade surplus beat analyst expectations in January. The surplus retreated to A$ 5.21 billion from A$ 5.38 billion printed a month earlier, versus A$ 4.80 bn penciled in. The Aussie advanced to 0.6630 against the US dollar, as the latest trade data suggested that the coronavirus outbreak in China didn’t hit the Australian economy as hard as many expected, at least in January.
Elsewhere, the Bank of Canada (BoC) surprised by a 50-basis-point cut on Wednesday, sending the USDCAD to 1.3430. Stocks in Toronto rose 2.22%.
The Bank of England (BoE) Governor Bailey swam against the tide, however, saying ‘what we need is frankly more evidence than we have at the moment as to exactly how this is feeding through’. Sterling surged to 1.2874 against the greenback as BoE doves flew off on Bailey’s comments. Yet, the upside potential should remain limited on further USD recovery and mounting anxieties around the Brexit negotiations.
Most Asian markets gained in the overnight trading session. The CSI 300 surged 2.22%, the ASX 200 and Nikkei rose past 1%.
WTI crude traded a touch below the $48 mark per barrel. The two-day OPEC meeting starts today. Announcement of lower OPEC production could be the last piece in the puzzle to cement the recovery in the equity markets. But OPEC needs to pay up for that. Expectation is a 1-million-barrel cut per day, anything less could threaten a recovery in oil prices to and above the $50 level.
Activity on FTSE (+0.72%) and DAX (+0.98%) futures hint that the European stock indices are primed for a second straight day rise.
The EURUSD consolidated a touch below 1.1145, the 50-hour moving average. Recovery in US yields and the dollar could encourage a downside correction below the 1.11 level. Next support is seen at 1.1063, the 200-day moving average.