Stocks Rise Despite Swelling Coronavirus Fears
Stocks slumped last week amid fears of coronavirus-induced recession. However, experts said trading was mostly okay thanks to market infrastructure.
The S&P 500 lost 11.5% last week before pulling off a partial recovery on hopes central banks would ease economic impacts through rate cuts.
Last Friday, the market sold more than 19.35 billion shares. This figure was the second-highest amount on record. The first one was 19.76 billion on October 10, 2008.
European shares also jumped as investors betted on the coordination between governments and central banks.
Following Wall Street’s 5% jump, the pan-European STOXX 600 gained 2.4%. Among the biggest gainers were growth stocks like Lufthansa, Air France, and EasyJet.
Germany’s DAX gained 2.8%. In Italy, which is the center of coronavirus infection in Europe, the FTSE MIB gained 2.4%.
Market Infrastructure and the Virus
According to experts, the volatility in the market did not prevent buyers and sellers from connecting.
US markets are highly automated. Each second processes millions of messages, according to professionals.
Markets could expect to see more rapid sharp selling if the coronavirus continues to spread in New York. However, stock trading would likely continue to function even if the NYSE floor had to close.
Traders Bet on Central Bank Coordination
The stock market was betting on coordination between central banks and governments.
That’s because of the scheduling of a meeting between finance ministers and central banks of the G7 industrialized countries.
Hopes were high that the meeting would lead to the announcement of robust and coordinated measures to address the economic impact of the virus.
However, traders were disappointed when they found out no such measures would happen.
Traders then took heart from interest rate cuts during the Asian session from Australia and Malaysia. Another report suggested the European Central Bank was working on a new refinancing round to guarantee liquidity.
The report resonates with ECB President Christine Lagarde’s comment on Monday. She promised “appropriate and targeted measures.”
However, it contrasted with more ambitious market expectations of deeper interest rate cuts or more bond purchases.
The ECB is hesitant to ease rates because of its impact on banking profitability and the eurozone’s financial system.
At the same time, German public opinion and elsewhere remain opposed to more aggressive quantitative easing.
Others are reluctant to be optimistic.
One expert said last week’s plunge was “only a first leg drop that might suggest a bigger one to come.”
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