Asian shares grind higher, virus risks block the way

Asian shares rallied for a fourth straight session on Thursday as US markets swung sharply higher and another dose of central bank stimulus offered some salve for the global economic outlook.

Wall Street seemed to find relief in the strong performance of former Vice President Joe Biden in the Democratic nomination campaign. Biden is considered less likely to raise taxes and impose new regulations than rival Bernie Sanders.

The US House of Representatives also approved an $8.3 billion funding bill to combat the spread of the virus, sending the emergency legislation to the Senate. In another wild swing, the Dow surged 4.53 per cent, while the S&P 500 gained 4.22 per cent and the Nasdaq 3.85 per cent.

Asian markets followed, if more cautiously. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.7 per cent, in its fourth day of gains. Japan's Nikkei rose 0.9 per cent and hard-hit Australian shares finally managed a bounce of 1.1 per cent. Shanghai blue chips put on 1.3 per cent.

E-Mini futures for the S&P 500 dipped 0.6 per cent after its overnight jump, but EUROSTOXXX 50 futures rose 0.6 per cent and FTSE futures 0.4 per cent. The upbeat sentiment comes despite the coronavirus crisis showing no signs of slowing, with mounting deaths globally, Italy closing all of its schools and California declaring a state of emergency as cases there grow.

“There is little doubt that the COVID-19 outbreak will slow global growth considerably this quarter, and we expect it to actually produce a rare non-recessionary contraction in GDP,” said JPMorgan economist Joseph Lupton. He noted the bank's all-industry PMI measure of activity for February slumped 6.1 points, the largest one-month drop on record, and at 46.1 was at the lowest since May 2009.

The Federal Reserve and Bank of Canada had both responded by cutting interest rates by 50 basis points, and markets in the euro zone are pricing in a 90 per cent chance that the ECB will cut its deposit rate, now minus 0.50 per cent, by 10 basis points next week.

Yet, as policymakers grapple with the best strategy to avoid a global recession, some major central bank have been less keen to follow suit.

In the end, monetary policy was not a cure for the disease and the impact was likely to get worse before it got better.

“As we test more folks for COVID-19 in the United States, the case loads will rise and perhaps exponentially. So in the short-term, risk assets obviously remain beholden to Covid-19 headlines,” Tom Porcelli, chief US economist at RBC Capital Markets. “We have to get past the threshold where COVID-19 shifts from panic to headline exhaustion and subsequent news on it becomes more and more of a fade,” he added. “Then risk assets can move higher in earnest.”

Healthy, for now

At least the US economy was in healthy shape to face the risks, with services sector activity jumping to a one-year high in February, while private payrolls gained 183,000. The better data combined with the rally in stocks to nudge 10-year Treasury yields up from all-time lows under 1 per cent to stand at 1.02 per cent. Yields had fallen for 10 straight days, the longest slide in at least a generation.

That move gave the dollar a slight lift, with the euro dipping back to $1.1140 from a two-month high of $1.1212 hit earlier in the week. The dollar stood at 107.34 yen, from a five-month trough of 106.84, while the dollar index held steady at 97.333 .

Gold steadied after jumping in the wake of the Fed's rate cut, and was last at $1,638.97 per ounce.

Oil prices rebounded by more than 1 per cent on a smaller-than-expected rise in crude oil inventories in the United States. Brent crude futures firmed 68 cents to $51.81 a barrel, while U.S. crude added 59 cents to $47.37.

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