Stocks gain after emergency BoE cut adds to stimulus
hopes
Send a link to a friend
[March 11, 2020] By
Tommy Wilkes
LONDON (Reuters) - European stocks rose on
Wednesday after the Bank of England joined other central banks in
cutting interest rates, raising hopes for more co-ordinated monetary and
fiscal stimulus to counter the economic shock from the coronavirus
outbreak.
The surprise move from the BoE which - on the day that Britain's budget
is set to open the taps on spending - also announced measures to support
bank lending, lifted shares after a lacklustre session in Asia.
Wall Street had rallied significantly on Tuesday, helping reverse some
of Monday's brutal losses, but that failed to translate into improved
sentiment on Wednesday as scepticism grew about the stimulus package
announced by Washington to fight the epidemic.
By 0855 GMT, the FTSE 100 had risen 1.73%, the Euro Stoxx was 2.67%
ahead and Germany's DAX was 2.65% higher.
U.S. stock futures were down 1.2%, although that was up from the 3%
losses before the BoE's 50-basis-point cut in the base rate to 0.25%.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.05%.
With the Federal Reserve having already cut rates this month, the
pressure is on the European Central Bank to act when it meets on
Thursday.

The BoE did not announce any new quantitative easing but it did launch a
new scheme to support lending to small businesses. The UK finance
minister is due to present his first annual budget shortly after 1230
GMT.
"It is the only thing central banks can do in a public health crisis,"
Neil Dwane global strategist and portfolio manager at Allianz Global
Investors. "They are trying to take the shackles off the banks to ensure
we don't get a cash crunch."
Still, after a decade of extraordinary monetary policy, investors say
the impact of easier policy has clear limits, and increased government
spending must bear the brunt of the policy response to the economic
consequences of the outbreak.
"For the ECB their problem is that there is even more pressure because
they face the third largest euro zone economy - Italy - in dire
straits," Dwane said.
As of Tuesday's close, $8.1 trillion in value has been erased from
global stock markets in the recent rout.
The MSCI all-country index has lost more than 15% of its value since it
peaked on Feb. 12. It was unchanged in early trading on Wednesday.
(Graphic: Markets hit hard by coronavirus worries -
https://fingfx.thomsonreuters.com/
gfx/mkt/13/2716/2681/Pasted%20Image.jpg)
DECLINING DOLLAR
Sterling initially fell following the BoE decision before rebounding. It
was last up 0.5% at $1.2945 and flat versus the euro at 87.49 pence.
[to top of second column] |

A street cleaning operative walks past the London Stock Exchange
Group building in the City of London financial district, whilst
British stocks tumble as investors fear that the coronavirus
outbreak could stall the global economy, in London, Britain, March
9, 2020. REUTERS/Toby Melville

The dollar resumed its decline against the yen, the Swiss franc and the euro,
weighed by uncertainty about the U.S government's response and the drop in U.S.
Treasury yields, although the greenback remained significantly above levels seen
on Monday.
The euro rose 0.3% versus the U.S. currency to $1.1315.
Benchmark U.S. 10-year Treasury yields fell 4 basis points to 0.7129%, more than
double Monday's record low yield of 0.3180%.
Market participants largely expect the Fed to cut interest rates for the second
time this month at the conclusion of next week's regularly scheduled policy
meeting, after it surprised investors last week with a 50-basis-point cut. [FEDWATCH]
German government bond yields rose after the BoE cut improved sentiment, while
Italian yields - which had shot up on worries the country on the front line
Europe's virus outbreak is sliding into a recession - fell as bets on ECB
stimulus grow.
Italy is on lockdown in an attempt to slow new infections.
Karen Ward, Chief Market Strategist for EMEA at JP Morgan Asset Management, said
all eyes were now on the UK finance minister to see if he announces a big
increase in spending.
"If he does this would be the first instance of a truly coordinated monetary and
fiscal push. Investors may be comforted by the fact that policymakers are
willing to deploy their full ammunition - moving a step closer to helicopter
money," she said.
U.S. crude reversed earlier gains and dropped 0.7% to $34.23 per barrel, while
Brent crude slipped 0.21% to $37.14 after Saudi Aramco said it had been directed
by the energy ministry to raise its production capacity.

On Monday, the oil market plunged with futures recording their largest
percentage drop since the 1991 Gulf War as Saudi Arabia and Russia clashed
openly over management of supply.
Spot gold, which is often bought as a safe-haven during times of uncertainty,
rose 0.54% to $1,657 per ounce. [GOL/]
(Additional reporting by Marc Jones in London and Stanley White in Tokyo;
editing by John Stonestreet)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |