Demand for safe havens decreases as global stocks rally in a big rebound

Global equity markets rebounded in a broad rally on Tuesday and some safe-haven assets eased as investors took a less pessimistic view of the potential economic fallout from China's coronavirus outbreak.

Gold fell and the Japanese yen dipped against the dollar, but risk aversion in currency markets persisted, with the Australian dollar leading losers and the greenback strengthening to an eight-week high against a basket of six rivals.

In a possible warning of a future weak economy, strong gains in US Treasuries this week led key parts of the US yield curve to reinvert, a trend that in the past has indicated that a recession in the United States will follow in a year or two.

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Gains in technology and financial shares helped Wall Street recoup some losses from Monday's selloff, which was sparked by worries about the possible economic impact of the coronavirus outbreak.

Major European and US stock indexes rebounded around 1 per cent as President Xi Jinping said China was sure of defeating a "devil" coronavirus that has killed 106 people.

The World Health Organization's director-general said he is confident China can control the spread of the coronavirus, the Chinese Foreign Ministry said.

Chinese markets will remain closed until next week, but a 0.5 per cent overnight drop in Tokyo's Nikkei was more modest than Monday's thumping. Other Asian markets that were openly rallied.

[Traders Anthony Rinaldi (L) and Federico DeMarco (R) work on the floor of the New York Stock Exchange (Courtesy: Reuters) ]

"History shows us as we look back at several different examples that these viral outbreaks tend to be short-lived," said Candice Bangsund, a global asset allocation portfolio manager at Fiera Capital in Montreal.
While markets should gyrate for a while, the global economy will resume the improving growth it started to exhibit late last year, Bangsund said.

"The economy could be ripe for a sharp snapback or a V-shaped recovery once we find out when this is contained and when the outbreak is indeed brought under control," she said. "We maintain the global economy will come back to life."

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MSCI's gauge of stocks across the globe gained 0.65 per cent, while its emerging market index lost 0.05 per cent.

Shares on Wall Street also surged. The Dow Jones Industrial Average rose 187.05 points, or 0.66 per cent, to 28,722.85. The S&P 500 gained 32.61 points, or 1.01 per cent, to 3,276.24 and the Nasdaq Composite added 130.37 points, or 1.43 per cent, to 9,269.68.

Oil futures edged up after falling for five days, following the recovery in equities and talk that Organization of the Petroleum Exporting Countries and its allies might tighten the market amid fears the coronavirus could weigh on oil demand.
Brent futures settled up 19 cents at $59.51 a barrel, while US West Texas Intermediate (WTI) crude settled up 34 cents at $53.48. [O/R]

The yield on the benchmark 10-year US Treasury note bounced off three-month lows after a key part of the yield curve briefly inverted for the first time since October.

The yield fell as low as 1.57 per cent overnight, the lowest since October 10, before the 10-year note pared some losses to fall 13/32 in price and lift its yield to 1.6493 per cent.

An inverted curve, when longer-dated yields fall below shorter-maturity ones, has often been a percussor of a US recession. Eurozone government bond yields bounced off three-month lows to rise for the first time in over a week after US consumer confidence exceeded expectations to hit its highest level since August.

Traders awaited the outcome of a two-day meeting of Federal Reserve policymakers, which started on Tuesday. The market consensus is that the central bank will keep interest rates unchanged at between 1.5 per cent and 1.75 per cent.

The dollar index rose 0.02 per cent, with the euro up 0.03 per cent to $1.1019. The yen weakened 0.24 per cent versus the greenback at 109.15 per dollar. The US gold futures settled down 0.5 per cent at $1,569.8 an ounce.