Coronavirus: Stocks rise as traders expect US Federal Reserve rate cut
Global stock markets have risen on expectations that the US Federal Reserve will slash interest rates to support the economy and boost confidence amid the coronavirus outbreak.
A volatile morning saw Wall Street open higher before slipping into the red and then rebounding.
The US’s S&P 500 stood 2.2 per cent higher two hours into its trading session, while the Dow Jones was up 2.3 per cent and the Nasdaq was up 2.2 per cent.
A recovery in the stock markets came after nearly $6 trillion (£4.7 trillion) was wiped off global equities last week in the worst five days for shares since 2008.
European were today shaken by a gloomy growth prediction from the OECD, but were then dragged higher by US confidence.
The pan-European Stoxx 600 index was 0.1 per cent higher as it approached the close, while France’s CAC 40 was up 0.5 per cent. Germany’s Dax remained down 0.2 per cent.
In the UK, the FTSE 100 closed 1.1 per cent higher, boosted by a drop in the pound. Sterling has fallen on expectations that the Bank of England will cut interest rates as well as uncertainty over trade talks.
Saxobank sales trader Adam Seagrave said: “A lot of today’s move has come from, which is our view at Saxo, that the Fed could cut 50 basis points [0.5 percentage points] this week to try and get some stability and confidence back in the system.”
Traders now think there is a 100 per cent chance the Fed will cut rates by 50 basis points, down to a target range of one per cent to 1.25 per cent, when its policymakers next meet, according to CME Group’s Fedwatch tool.
Yet Seagrave and many other traders and analysts have questioned whether monetary policy is the best tool to tackle the virus’s effect on the economy.
“If you end up in a situation where entire societies and cities are on lock-down like we observed in China then a 50 basis point cut is going to have a lesser impact than something like that is,” he said.
A rocky day for traders was punctuated by the OECD saying coronavirus could result in just 1.5 per cent world growth this year if it spreads fast through Asia, Europe and North America.
However, the Paris-based organisation’s base case is that containment efforts will avoid this situation. Nonetheless, growth is expected to be just 2.4 per cent this year, the worst since 2009.
The OECD urged governments to “act swiftly and forcefully to overcome the coronavirus and its economic impact”.