European stocks are holding firm at record levels today, despite disagreement over whether the coronavirus outbreak is actually easing.
The Stoxx 600 (made up of Europe’s 600 largest companies) is still trading at a new peak, up 0.44% or 1.87 points at 430.
The basic materials sector is leading the way, up 1%, followed by consumer stocks (+0.9%), and energy (+0.85%).
It’s quite a rally, given the global economy had already slowed last year before the coronavirus struck.
Craig Erlam, senior market analyst at OANDA Europe, suggests investors are gripped by a Fear Of Missing Out (FOMO):
There’s no stopping these markets, it seems, with Europe back in record territory on the tiniest sliver of good news in regard to the, newly-named, COVID-19.
Stock market investors are relentless, their ability to see the bull in any situation rivals only that of bitcoin enthusiasts, who can, it seems, make a bullish crypto argument for any and every newsworthy event. Yesterday saw the first deceleration in new COVID-19 cases in China, apparently a clear sign that the dawn is upon us.
While I desperately hope that this is the case, one day of fewer reported cases is not exactly cause for celebration. The last weeks have been brutal and the number of cases and death toll have accelerated at a frightening rate. It’s far too early to declare victory, but in the era of FOMO trading, investors are doing just that.
It’s now hoped that, as far as the economy is concerned, we’re just facing a bad quarter that could wipe around 1% of full year Chinese growth. I’m sure the data over the coming , weeks will enlighten us further on this but, should that turn out to be true, that seems perfectly manageable. Although companies in the country may not be so fortunate.
S&P: Coronavirus will hurt UK and eurozone economies
The coronavirus crisis is likely cut 0.1 to 0.2 percentage points off growth in the UK economy, and in the eurozone, this year, according to analysts at S&P Global Ratings.
They predict that growth will suffer, due to lower exports to China and weaker business investment.
Britain’s economy only grew by 1.4% in 2019, while the eurozone expanded by just 1.2%, so a 0.2 percentage point cut could hurt.
But while some sectors, such as carmaking, will be hit, the wider economy could be more resilient.
Sylvain Broyer, S&P Global Ratings chief economist for EMEA, explains:
“The coronavirus, which has triggered lockdowns in some parts of China, poses a risk of disruption to the European value chain, amplified by the current low levels of European inventories especially in the car sector, following four consecutive quarters of contraction.”
German manufacturing sector is particularly vulnerable, the report says. Production of computers and electronics, electrical equipment, machinery equipment, and car could all be hit by weaker demand from China.
However, the eurozone is in better shape to ride out Covid-19 than it was 17 years ago when Sars hit, Broyer argues:
“In 2003, the unemployment rate was on the rise across the continent. Today, European unemployment is close to an all-time low.
Moreover, by lowering global growth expectations, the coronavirus has weighed on the oil price, which will lend support to households’ purchasing power in Europe.
Introduction: Markets at fresh peaks.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stock markets on both sides of the Atlantic are touching record highs today, as optimism grows that the coronavirus crisis won’t badly hurt the global economy.
The EU-wide Stoxx 600 index of top European shares has just opened at a new record high, with Germany’s DAX leading the charge higher.
On Wall Street, the S&P 500 and the Nasdaq also hit record levels, and we’re expecting further gains today.
The rally comes as the number of new cases of Covid-19 (as it’s now known) slowed. Some 2,105 new cases were reported in China today, the lowest daily increase since 30 January, lifting the total to 44,670.
Perhaps significantly, the number of new cases in Hubei (where the outbreak began) also dipped.
One government epidemiologist, Zhong Nanshan, has suggested that the outbreak could be over by April - a claim other experts fear is too optimistic.
But even though new suspected cases are cropping up every around the world (from cruise ships to an Oxfordshire prison), investors are increasingly confident that the virus will be contained.
There’s lots of talk about “V-shaped” recoveries today, and optimism that global supply chains will bounce back from the mass closure of factories seen across China in recent weeks.
Kyle Rodda, analyst at IG, explains:
The newly termed ‘COVID-19’ virus continues to keep the market and central bankers vigilant.
Wall Street charged on to record, running by the same theme from the start of the week on expectations that the coronavirus containment efforts could keep odds of a pandemic at bay.
But.... are investors simply too complacent?
Neil Wilson of Markets.com advises caution, especially as Beijing has tweaked how it reports new cases of the virus.
The hope is airlines and industry will be back online soon. I’d be cautious about this. We’re also mindful of secondary and tertiary outbreaks in Europe and North America even as new cases slow in China.
The rally is also being driven by confidence that central banks will maintain loose monetary policy.
Yesterday, Fed chair Jerome Powell told Congress that the US economy was in a good place, without suggesting rate rises were on the cards. Even that wasn’t enough for Donald Trump, who gave Powell another Twitter blast for making the dollar too pricey.
Also coming up today
The latest eurozone factory data is likely to show a big fall in output in December, given we’ve already seen weak surveys from Germany, France and Italy.
- 10am GMT: Eurozone industrial production data for December; output expected to shrink by 1.9% year-on-year
- 3pm GMT: Fed chair Jerome Powell testifies to the Senate banking committee