By Herbert Lash
NEW YORK (Reuters) – The dollar gained and a gauge of global equity markets surged for a third day on Wednesday as expectations of more central bank stimulus and reports suggesting scientists were closing in on a vaccine for the deadly coronavirus boosted sentiment.
U.S Treasury yields rose as traders welcomed early reports that a Chinese university team found a drug to treat those infected with the virus while UK researchers said they made a “significant breakthrough” in finding a vaccine.
A total of 24,363 confirmed cases have been counted in China, including 490 deaths. The World Health Organization said there are “no known proven effective therapeutics” against the virus.
The acceleration of euro zone business activity in January, indicating the worst may be over for the bloc’s economy, and U.S. data showing an economy that is growing, albeit moderately, also boosted risk appetite and doused a bid for safe havens.
MSCI’s gauge of stocks across the globe gained 0.87%, hovering less than 1% from a record high set two weeks ago. But the Nasdaq on Wall Street set a new high and the benchmark S&P 500 was about two-tenths of 1% from a fresh record.
Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York said stimulus efforts by China’s central bank and greater U.S. liquidity because of Federal Reserve operations in the repo market have boosted risk assets.
“I have a tough time justifying why this market is trading at 19 times earnings and why we have managed to snap back from any sell-off since October,” Abbasi said, regarding U.S. stocks.
“But at this point, looking at this market, it almost feels like any hiccup further emboldens the global central bank put,” he said, referring to central bank activity that increases market liquidity and encourages risk taking.
The benchmark S&P 500 surged to less than 1 point from a new high.
Investors are hungry for risk as markets this year have been buffeted by U.S.-Iran tensions and the coronavirus outbreak, said Valentin Marinov, the head of G10 FX Strategy at Credit Agricole CIB Global Markets in London.
“There is a lot of cash on the side-lines that is now being invested in risk assets and carry trades,” Marinov said.
The Dow Jones Industrial Average rose 459.87 points, or 1.6%, to 29,267.5. The S&P 500 gained 37.89 points, or 1.15%, to 3,335.48 and the Nasdaq Composite added 55.72 points, or 0.59%, to 9,523.69.
In Europe, the pan-regional STOXX 600 index rose 1.23% and MSCI’s gauge of stocks across the globe gained 0.87%, while emerging market stocks rose 0.53%.
IHS Markit’s final euro zone composite Purchasing Managers’ Index (PMI), seen as a good indicator of economic health, rose to a five-month high of 51.3 in January from 50.9 the previous month.
U.S. data also was encouraging.
The Institute for Supply Management (ISM) said its non-manufacturing activity index increased to a reading of55.5 in January, the highest level since August. Data for December was revised slightly down to show the index at a reading of 54.9 instead of the previously reported 55.0.
Readings above 50 indicate economic expansion.
The dollar gained against the safe-haven Japanese yen and Swiss franc, as risk appetite rose on reports of a possible treatment for the coronavirus.
The U.S. currency also benefited from a private-sector payrolls report for January that surpassed market expectations, suggesting the world’s largest economy was on a stable growth path and interest rate cuts were off the table for now.
The dollar index rose 0.34%, with the euro down 0.41% to $1.0997. The yen weakened 0.26% versus the greenback at 109.83 per dollar.
Overnight in Asia, stringent containment measures, along with the billions of dollars Chinese authorities have pumped into the economy, boosted mainland China indexes more than 1%. The bourses have clawed back half of the $700 billion in market capitalization that was wiped out during Monday’s almost 8% rout.
Oil prices jumped 4% after media reports highlighted a potential vaccine, though the World Health Organization played down the news, saying there are “no known effective therapeutics” against the virus.
Brent crude oil futures rose $1.32 to settle up at $55.28 a barrel. U.S. West Texas Intermediate (WTI) crude gained $1.14 to settle at $50.75.
Benchmark 10-year notes fell 14/32 in price to yield 1.6491%.
Gold rose as a hedge
U.S. gold futures settled 0.5% up at $1,562.80.
(Reporting by Herbert Lash, additional reporting by Sujata Rao-Coverley in London; Editing by Nick Zieminski and Tom Brown)
