World stocks rally, safe-haven currencies drop on China plan to cut tariffs

Herbert Lash, Reuters

Posted at Feb 07 2020 08:24 AM

World stocks rally, safe-haven currencies drop on China plan to cut tariffs 1
Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, US, Feb. 6, 2020. Lucas Jackson, Reuters

NEW YORK -- World equity markets rallied for a fourth day on Thursday, with key stock indexes touching fresh peaks, as news that China plans to cut tariffs in half on some US goods buoyed risk sentiment and pushed safe-haven currencies lower.

The yield on Germany's benchmark 10-year Bund touched its highest in almost 2 weeks and US Treasury yields rose as investors bet China's efforts to contain the deadly coronavirus would mitigate its impact on the global economy.

The death toll in mainland China jumped by 73 to 563, with more than 28,000 infections confirmed.

US Treasury Secretary Steven Mnuchin, in an interview with Fox Business Network, downplayed concerns that the outbreak could affect global supply chains, but acknowledged "this is something we're monitoring very carefully."

Major stock indexes, including the STOXX Europe 600 of small-, mid- and large-cap stocks, the benchmark S&P 500 and Dow industrials on Wall Street, and the S&P/TSX composite in Toronto, set records.

The yen slid to a two-week low against the dollar and the franc fell to its weakest in more than a week as investors hailed news China would halve tariffs on 1,717 US goods.

Many risk-off moves taken over the past two weeks are being unwound, said Simon Harvey, an FX market analyst at Monex Europe in London.

"We're seeing credible responses from monetary authorities in China and it looks like it's soothing market fears of a more entrenched slowdown in the Chinese economy," Harvey said.

MSCI's gauge of stocks across the globe gained 0.53 percent and its emerging market stocks rose 1.03 percent.

The pan-European STOXX 600 index rose 0.44 percent, helped by a swathe of strong earnings reports, with the euro zone banks index posting its biggest daily gain in a month.

Indexes in Frankfurt, Paris and London all gained, rising between 0.3 percent and 0.9 percent.

The Dow Jones Industrial Average rose 95.16 points, or 0.32 percent, to 29,386.01. The S&P 500 gained 10.74 points, or 0.32 percent, to 3,345.43 and the Nasdaq Composite added 52.71 points, or 0.55 percent, to 9,561.39.

Rebounding worker productivity in the fourth quarter and other U.S. economic data also lifted sentiment on Wall Street.

The number of Americans filing for unemployment benefits dropped to a nine-month low last week.

Despite optimism about containing economic fallout, the impact of the health emergency in China was showing up in corporate reports. Chipmaker Qualcomm Inc flagged a potential threat to the mobile phone industry from the outbreak, and its shares fell 1.7 percent.

The dollar index rose 0.21 percent, with the euro down 0.2 percent to $1.0975. The yen weakened 0.15 percent versus the greenback at 110.00 per dollar.

Gold rose on expectations central banks will keep interest rates low. US gold futures settled up 0.5 percent at $1,570 an ounce.

Bond yields in Europe were pressured upward by remarks from European Central Bank President Christine Lagarde that euro zone growth remains modest but there are signs of stabilization.

Germany's Bund yield rose as much as 3 basis points to -0.339 percent, its highest in almost two weeks, before pulling back to around -0.39 percent.

Benchmark 10-year US Treasury notes fell 1/32 in price to yield 1.6508 percent.

Brent crude gave up early gains as the Organization of the Petroleum Exporting Countries and Russia gave mixed signals about possible further output cuts to counter concerns about weak demand due to the coronavirus.

Brent fell by 35 cents to settle at $54.93 a barrel while West Texas Intermediate rose 20 cents to settle at $51.07 a barrel.