Shares inch higher on stimulus hopes


European shares have touched record highs as investors digested whether China’s coronavirus outbreak would cause long-lasting damage to global economy.

Europe’s broad Euro STOXX 600 clawed up 0.1 per cent to follow Asian markets higher in choppy early trading, but indexes in Paris and London both fell 0.2 per cent.

In both cases, corporate results weighed, with a 5 per cent fall for AstraZeneca dragging London shares down as the drugmaker said it would take a hit from the coronavirus outbreak.

France’s Renault, meanwhile, fell 4.2 per cent on its first loss in 10 years as it set a lower operating margin goal for 2020.

The virus outbreak showed no sign of peaking, with health authorities reporting more than 5,000 new cases.

China’s National Health Commission said it had recorded 121 new deaths on the mainland on February 13, taking the accumulated total infected to 63,851 people.

Yet some investors are betting that the economic impact of the outbreak will not be long-lasting, finding succour in a spread beyond China that is not as rapid as feared.

Others have latched on to the possibility of further central bank stimulus measures in response to any slowdown. China’s central bank, for example, has already pumped liquidity into its economy.

Yet there is by no means a consensus that such a sunny take is warranted.

Some investors said they were dialling down bets on equities amid the uncertainty over what economic toll the coronavirus would take.

“We have actually taken some money out of equities this week,” said Rory McPherson, head of investment strategy at Psigma Investment Management, adding that it was temporarily holding cash instead.

“Markets have been overly focused on the good, and not giving a balanced view on whether the stimulus from China isn’t effective, and if the coronavirus spreads and impacts the economy more.”

MSCI world equity index, which tracks shares in 49 countries, was flat.

Wall Street futures were pointing to a slighly higher open.

Earlier, Asian shares had earlier inched higher towards their second straight week of gains, helped by hopes governments will make provisions to soften the impact on their economies from the coronavirus epidemic.

MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.2 per cent for weekly gain of 1.8 per cent, while China’s blue-chip CSI300 shares rose 0.7 per cent, having staged a stunning recovery to claw back 95 per cent of their losses made after the outbreak.

“China is already easing its monetary policy and providing more liquidity while more stimulus is likely. Factories are starting to reopen albeit with some delays,” said Yukino Yamada, senior strategist at Daiwa Securities.

Currency traders had matters beyond the cornovairus on their minds.

The euro slumped to to another near-three-year low, with worries lingering about slowing growth in the euro zone and rising political uncertainties in Germany.

The single currency has lost 1 per cent so far this week and is on track for its worst two-weekly performance since mid-2018, with investors watching out for an estimate of how the economy performed in the fourth quarter.

Euro zone GDP data due later on Friday is expected show a sluggish growth of 0.1 per cent from the previous quarter.

The euro fell to as low as $US1.0827, and last stood flat at $US1.0830.

Others signalled growing demand for the US dollar.

“Investors will surely avoid Asia for the time being and will shift funds to the US, geographically the most separated from the region,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Against a basket of currencies, the US dollar hit a four-month high.

Oil edged higher and was on track for its first weekly gain in six weeks, backed by expectations that producers will implement deeper output cuts to offset slowing demand in China caused by the coronavirus epidemic.

Brent crude futures were up 15 cents at $US56.49 a barrel. Brent is 3.7 per cent higher for the week.