By Marc Jones and Herbert Lash
LONDON/NEW YORK (Reuters) – Equity markets around the world surged on Monday as the prospect for central banks cutting interest rates to soften the economic blow of the coronavirus heartened investors and drove U.S. government debt yields to record lows.
Global factories took a beating in February from the coronavirus, with activity in China shrinking at a record pace, surveys showed, raising the prospect of a coordinated policy response by central banks to prevent a global recession.
The dollar slipped to a fresh one-month low against a basket of currencies after the Federal Reserve, Bank of Japan and Bank of England all indicated a willingness to take action to confront the economic fallout from the coronavirus.
The yield on the benchmark 10-year U.S. Treasury note fell to an all-time low of 1.03% while the 10-year German bund
Oil prices jumped more than 4%, reversing an early decline to multi-year lows, as hopes of a deeper output cut by the Organization of the Petroleum Exporting Countries and central banks’ policy measures countered fears of slower growth.
“There’s a growing sense that we’re going to see coordinated action by global central banks to try to offset the slowdown from the coronavirus,” said Phil Flynn, an analyst at Price Futures Group.
Equity markets around the world rose after suffering their worst plunge last week since the depths of the 2008 financial crisis.
Asian markets initially fell after China reported a record slump in factory activity but the region rallied to finish higher.
MSCI’s broadest index of world shares <.MIWD00000PUS> rose for the first time in eight sessions. The index gained 1.87% and emerging market stocks rose 1.08%.
In Europe, the broad STOXX 600 index <.STOXX> rose 0.09% and stocks on Wall Street rallied more than 2%.
The Dow Jones Industrial Average <.DJI> rose 647.28 points, or 2.55%, to 26,056.64. The S&P 500 <.SPX> gained 68.91 points, or 2.33%, to 3,023.13 and the Nasdaq Composite <.IXIC> added 196.66 points, or 2.3%, to 8,764.03.
The scale of losses last week – almost $6 trillion was wiped off world stocks – led financial markets to price in policy responses from almost every major central bank.
Fed funds futures now imply a full 50 basis point cut by the Fed at its March 17-18 meeting <0#FF:>.
The disruption to global supply chains, factory output and global travel caused by the coronavirus has worsened the outlook for a world economy already struggling with the fallout of the U.S.-China trade war.
In Paris, the Organization for Economic Cooperation and Development (OECD) warned the outbreak could cause the worst global downturn since the financial crisis. In a bleak scenario, growth could drop to just 1.5%.
The OECD’s outlook and the likelihood for slower growth has investors and market analysts worried the worst is yet to come.
“Nobody knows how this is going to play out,” said Ed Clissold, chief U.S. strategist at Ned Davis Research.
“There are going to be some nasty headlines in the next few weeks about people in various countries, including the United States, getting coronavirus,” he said.
Companies will issue profit warnings and some economic data will look scary, Clissold said, suggesting the market has not found a bottom yet.
Ned Davis examined previous global health scares since 2002, which registered a far lower gauge of investor sentiment, he said. An average reading was about 13, and the coronavirus reading is only 27, he said.
The epidemic, which began in the Chinese province of Hubei, has killed 3,000 people worldwide as authorities race to contain infections in Japan, Iran, Italy, South Korea and the United States.
Gold rose after last week suffering its largest daily fall in nearly seven years.
Spot gold prices
The dollar index <=USD> fell 0.759%, with the euro
The Japanese yen
Benchmark 10-year notes
(Reporting by Herbert Lash, additional reporting by Stephanie Kelly in New York, editing by Chris Reese)