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Market rebound falters on doubts over coronavirus stimulus

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Via Financial Times

The nascent rebound in stock markets stumbled in Asia on Tuesday as doubts emerged that central banks would take action to soften the global economic blow from the coronavirus outbreak.

Equity markets across the region initially rallied in morning trade in line with Wall Street overnight as investors pinned hopes on a potential announcement of co-ordinated monetary and fiscal stimulus when finance ministers and central bankers of the G7 nations meet later in the day.

The S&P 500 benchmark had surged by 4.6 per cent on Monday in New York in its biggest one-day gain in 14 months.

But optimism over policy support dimmed following a report that a draft statement attributed to officials from G7 countries did not specifically call for new fiscal or monetary easing from member nations to counter the virus.

“The G7 is not showing their hand right now simply because it’s too early — they don’t have enough data [on the outbreak’s economic impact],” said Stephen Innes, chief market strategist at currency broker AxiCorp.

Japan’s Topix closed down 1.4 per cent after having been up 1.7 per cent. The Japanese yen — viewed by investors as a haven during times of uncertainty — strengthened 0.6 per cent to ¥107.73 per dollar.

The CSI 300 index of Shanghai- and Shenzhen-listed stocks was just 0.3 per cent higher in afternoon trading, having been up 1.3 per cent in the morning.

S&P 500 futures fell 0.6 per cent after earlier trading as much as 1 per cent higher.

Investors had this week began betting on a wave of monetary and fiscal stimulus measures by countries that have been affected by the spread of Covid-19.

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The Reserve Bank of Australia on Tuesday cut its key policy rate by 0.25 percentage point to a new record low of 0.5 per cent in a measure that was partly in response to the outbreak. The S&P ASX/200 was up 0.7 per cent after earlier rising 1.2 per cent.

The Bank of Japan had injected liquidity into the country’s financial system for a second day, and has said it would directly purchases assets to maintain market stability.

Investors are now pricing in at a US rate cut of at least 0.25 percentage point when the Federal Reserve’s monetary policy committee meets later in March.

Oil prices continued to climb on Tuesday with Brent crude, the international benchmark, rising 1.7 per cent to $52.81 a barrel. West Texas Intermediate, the US marker, jumped 2 per cent to $47.66. The yield on 10-year US Treasuries dropped 5 basis points to 1.112 per cent.

Analysts had warned that stimulus measures in China, where the outbreak and began and which is home to most Covid-19 infections, could prove anticlimactic. 

“It is premature to expect an imminent fiscal stimulus from China,” said Zhou Hao, an economist at Commerzbank. “The enthusiasm in the financial markets due to China’s stimulus hope is probably overdone.”

Mr Zhou said it was unlikely Beijing would launch any large-scale stimulus until it was clearer how much damage had been done to the economy by the coronavirus. The annual meeting of China’s legislature has been delayed due to the epidemic, further clouding the outlook for such measures.

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The prospect of co-ordinated easing efforts had prompted investors to jump back into riskier assets such as equities, which sold off heavily last week due to the outbreak, said Christy Tan, head of Asia markets strategy and research at National Australia Bank. 

But she warned earlier on Tuesday there was scope for disappointment in the extent of stimulus measures. “The last time there was any kind of concerted action by [the G7 central banks] was during the global financial crisis. We’re not in that situation,” she said.

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