Global shares extend rebound on hopes of G7 support

TOKYO:  Global shares and oil prices extended their rebound on Tuesday on mounting speculation policymakers around the world would move to ease the economic fallout from the spreading coronavirus, ahead of a conference call by Group of Seven heads.

Finance ministers from the group are expected to hold a conference call on Tuesday (1200 GMT), sources said, to discuss measures to deal with the economic impact of the coronavirus outbreak.

“There are hopes that G7 countries will take some sort of coordinated actions to fight the virus, possibly including fiscal spending,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

The European Central Bank on Monday joined the chorus of central banks signalling a readiness to deal with the growing threats from the outbreak.

Earlier messages from the U.S. Federal Reserve that it was prepared to act weighed on the greenback against many other major currencies.

The improved mood supported U.S. S&P 500 futures, which rose 0.3% in early Asian trade on Tuesday, a day after the S&P 500 gained 4.60%, the biggest gain since December 2018.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.0%.

South Korea’s Kospi added 1.3% and Australian shares advanced 1.6% ahead of an expected rate cut by the Reserve Bank of Australia.

Japan’s Nikkei lost steam after short-covering ran its course, trading almost flat having given up earlier gains of 1.8%.

The rout in global stocks last week had already prompted Fed Chair Jerome Powell and Bank of Japan Governor Haruhiko Kuroda to flag a readiness to move.

Money markets are fully pricing in an cut of at least 0.25 percentage point to the current 1.50%-1.75% target rate at the Fed’s March 17-18 meeting as well as a 0.10 percentage point cut to the ECB’s key rate at March 12 meeting.

Coronavirus is now spreading much more rapidly outside China than within the country, leading the world into uncharted territory, although the World Health Organization (WHO) has so far stopped short of calling it a pandemic.

FED RATE CUTS

The rebound in global stock prices saw U.S. bond yields roll back some of their sharp falls.

The 10-year U.S. Treasuries yield retreated to 1.135% from a record low of 1.030% marked on Monday. The rate-sensitive two-year notes yield jumped back to 0.859% from Monday’s 3 1/2-year low of 0.710%.

Still, the 10-year and two-year yields are down more than 40 and 50 basis points, respectively, from about two weeks ago.

April Fed funds rate futures still price in about 80% chance of a 0.50 percentage point cut this month and a total of almost 1 percentage point cuts by the end of year.

Expectations of Fed rate cuts prompted investors to cut their exposure to the dollar.

Against the yen, the dollar lost 0.3% to 107.97 yen, slipping towards a five-month low of 107 set on Monday.

The euro stood at $1.1139, having hit an eight-week peak of $1.1185.

The Australian dollar dropped 0.3% to $0.6517, less than a cent above an 11-year low of $0.64345 set on Friday.

Australia’s central bank is widely expected to cut the policy interest rate to 0.5% from 0.75%, already at a record low.

Oil prices bounced back further after a jump of more than 4% on Monday, reversing an early decline to multi-year lows.