Stocks soar on hopes that stimulus will counter coronavirus, but analysts warn the worst may be yet to come
- Stocks rose on Tuesday as investors cheered the prospect of monetary and fiscal stimulus in response to coronavirus.
- Australia's central bank cut its key interest rate by 0.25 percentage points to a record low of 0.5%.
- G7 central bankers and finance chiefs are set to discuss their policy responses to the potential pandemic on a call.
- However, analysts warned stocks could slump again once the economic impacts of coronavirus are revealed.
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Global stocks rallied on Tuesday as investors bet central banks and governments would ramp up monetary and fiscal stimulus to protect economies against coronavirus.
Central bankers and finance chiefs from the G7, including Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin, are set to discuss their policy responses to the potential pandemic on a call later today. However, Reuters reported the officials are unlikely to detail a coordinated strategy.
Australia's central bank pulled the trigger on Tuesday, cutting its key interest rate by 0.25 percentage points to a record low of 0.5%. The move spurred President Donald Trump to criticize Powell on Twitter and pressure him to follow suit, or "ease and cut rate big."
"The prospect of stimulus ... is helping to provide a degree of comfort to bruised and battered markets," Neil Wilson, chief market analyst for Markets.com, said in a morning note.
"Whilst no one thinks central banks can solve the crisis, they can make it easier for indebted companies to weather the storm, and prevent a tightening of financial conditions," he added.
Coronavirus - which causes a disease named COVID-19 - has infected more than 89,000 people, killed at least 3,000, and spread to upwards of 69 countries.
Here's the market roundup as of 11:15 a.m. in London (6:15 a.m. in New York)
- European equities rose with Germany's DAX up 2.2%, Britain's FTSE 100 up 2%, and the Euro Stoxx 50 up 2.1%.
- Asian indexes closed broadly higher. China's Shanghai Composite rose 0.7%, Hong Kong's Hang Seng rose 0.2%, and South Korea's KOSPI rose 0.6%. Japan's Nikkei fell 1.2%.
- US stocks are set to open higher with futures underlying the Dow Jones Industrial Average and S&P 500 up 0.6% to 0.7%, and Nasdaq futures up 0.9%.
- Oil prices jumped, with West Texas Intermediate up 3.4% at $48.40 a barrel and Brent crude up 2.9% at $53.40.
Several analysts warned investors are too excited about stimulus.
"What level of interest rates is required to incentivize you to risk the death of yourself and your family?" Michael Every, senior Asia-Pacific strategist at RaboResearch, asked in a research note. "Lower rates don't help in this situation at all."
"If demand is destroyed by people bunkering down at home for weeks, and supply chains being disrupted, all lower borrowing costs can do is help tide businesses over if banks agree to extend loans and credit cards," he added. "All that does is paint us further into the corner we are already in, because those rates won't be able to rise again."
"I am skeptical that the worst is over for the US equity markets," Naeem Aslam, chief market analyst at AvaTrade, said in a morning note.
"The coronavirus situation is still awful," he continued, pointing to the rising number of infections and deaths. He also highlighted airlines canceling and cutting the frequency of flights, productivity dropping as workers stay home, and consumers spending less as they avoid shopping malls and other public places.
"The US and Chinese economic numbers are bound to print horrible readings and investors aren't going to like it," Aslam concluded.
