Australian shares are set to open sharply higher, bolstered by a widening global effort to restore stability in financial markets.

ASX futures up 112 points or 1.8% to 6435 near 8.30am AEDT. The local currency retopped the US66¢ level, rising 0.6%.

Overnight, the Bank of Canada slashed its key rate the most in a decade, following the RBA on Tuesday and the Federal Reserve yesterday. ING anticipates, within the next week or so, a quarter point cut by the Bank of England and a 10bps cut by the European Central Bank. It also anticipates further small cuts to rates by the People’s Bank of China.

Rather than appease investors, the moves have stoked bets of more – potentially a lot more. Jim Bianco says US futures point to another 50 basis point cut by the Fed when its policymakers meet later this month.

Bianco also said he sees a path for the Fed to cut its key rate to zero as early as this month, which would clear the way for “massive” QE.

Allianz chief economic advisor Mohamed El-Erian said the risk for central bankers is that the more they “coddle” markets, the more investors will press for still more rate cuts.

“They should not be protecting companies and investors against all mistakes—only those that pose serious systemic risk,” he said in a series of tweets.

RBC Capital Markets’ Tom Porcelli said he wasn’t sure if the Fed would cut again, though “the Fed will remain beholden to the whims of the equity market. If equities melt down again, the Fed will give the market more placebo”.

Still Mr Porcelli questioned the wave of negativity: “With folks falling all over themselves now to ramp up recession odds, it is beginning to feel as though the pendulum has swung too far. It is quite possible that the negative supply-chain narrative, because the issue is so opaque, has been overstated.”

In New York, shares rallied strongly with the Dow up 4.5 per cent or 1173 points at the close. The S&P 500 gained 4.2% and the Nasdaq rose 3.9%.

All of the S&P 500’s industry sectors advanced paced by a 5.8% rise in healthcare, 5.7% rise in utilities and 4.9% rise in consumer staples.

The US 10-year note yield was 4bps higher to 1.03% near 4.20pm New York time.

Also bolstering US investors was the latest report on the services sector; the ISM nonmanufacturing index for February exceeded expectations. The rose 1.8 points to a one-year high of 57.3.

Oxford Economics’ Nancy Vanden Houten said as positive as the ISM report was, she’s expecting the index to stumble this month, reflecting the widening impact of the coronavirus outbreak.

Another positive was that the field of contenders in the Democrat presidential nominee race has narrowed again with Mike Bloomberg dropping out and Elizabeth Warren seen leaning that way too.

The positive, for markets, is that Joe Biden has surged back to life; he’s seen as far more moderate than Bernie Sanders who had earlier momentum. Specifically, Biden is keen to retain the current overall approach to healthcare as opposed to Sanders’ medicare for all plan.

Finally, legislation to control the spread of coronavirus and develop vaccines for the highly-contagious disease is set to move through the US House of Representatives after congressional negotiators struck a deal on its provisions.

The bill would devote $US8.3 billion for government-sponsored initiatives, including expanding testing for the virus, which has infected at least 129 people in the United States. Two more deaths were reported, increasing the toll to 11.

Capital Economics has turned bullish on the outlook for iron ore. The spot price retook the $US90 a tonne level at its latest setting, according to Fastmarkets MB.

“The prospect of stronger demand stemming from stimulus in China, alongside recent supply disruptions, means that we now expect the deficit in the iron ore market to deepen this year, rather than shrink,” CE’s Kieran Clancy said.

Mr Clancy sees iron ore prices tracking closer to $US90 a tonne by the end of 2020, up from a slide towards the $US70 mark.

“We now expect global iron ore demand growth to be near 1% in 2020, led by China (compared to our forecast of a small contraction previously),” Mr Clancy said, whereas his expectation of a 2% rise in global iron ore production has been cut to being broadly flat with 2019.

Today’s agenda

Local: Trade balance January

NAB on the trade data: “The trade surplus is forecast to have shrunk by $0.6b to $4.6b in January (mkt: $4.8b). Our model of exports – based on commodity prices and ports data – suggests a $350m fall in exports in the month. Incorporating some downside risk to service exports from coronavirus and a pull-back in non-monetary gold after last month’s spike, we expect a larger pull back in the overall trade balance.”

Overseas data: US January factory orders and durable goods orders

Market highlights

ASX futures up 1112 points or 1.8% to 6435 near 8.30am AEDT

  • AUD +0.6% to 66.23 US cents (Overnight peak 66.28)
  • On Wall St: Dow +4.5% S&P 500 +4.2% Nasdaq +3.9%
  • In New York: BHP +4.2% Rio +5.6% Atlassian +5.3%
  • Apple +4.6% Netflix +4.1% Microsoft +3.7% Amazon +3.5%
  • In Europe: Stoxx 50 +1.4% FTSE +1.5% CAC +1.3% DAX +1.2%
  • Spot gold +0.1% to $US1642.91 an ounce at 1.18pm New York time
  • Brent crude -0.1% to $US51.79 a barrel
  • US oil +0.6% to $US47.45 a barrel
  • Iron ore +2.8% to $US90.99 a tonne
  • Dalian iron ore +0.9% to 660 yuan
  • LME aluminium +0.2% to $US1726 a tonne
  • LME copper +0.3% to $US5684 a tonne
  • 2-year yield: US 0.66% Australia 0.38%
  • 5-year yield: US 0.76% Australia 0.40%
  • 10-year yield: US 1.03% Australia 0.71% Germany -0.64%
  • 10-year US/Australia yield gap: 32 basis points

From today’s Financial Review

RBA slashes growth 0.5pc on coronavirus fears: Coronavirus is expected to have already taken off 0.5 of a percentage point off economic growth, according to the Reserve Bank.

Government prepares to spend billions amid recession fears: The federal government harbours real fears of recession as it prepares a stimulus package that will run into the billions.

The deflationary fear spooking markets: Investors are increasingly anxious about the deflationary forces unleashed by the coronavirus outbreak at a time when global debt levels are at a record high.

Rate cuts can’t stop sharemarket slide: Strategists say the economic damage is already being done in terms of the coronavirus slowdown, with central banks behind the eight ball.

United States

Democrats finally have a clear choice: The young, restive dreamers for a different America that make up the Bernie Sanders base didn’t have a good Super Tuesday. Joe Biden’s backers, however, did.

Bloomberg drops out, backs Biden in Democratic presidential race: “A viable path to the nomination no longer exists,” Michael Bloomberg said in a statement.

Europe

European eyes turn to fiscal policy in fight against coronavirus: Eurozone ministers said Brussels’ strict budget rules could be flexed, taking the heat off of the maxed-out European Central Bank.

European shares rose on Wednesday, with defensive sectors gaining the most.

The pan-European STOXX 600 index rose 1.4%, with the utilities and telecom sectors leading gains.

Danish wind farm developer Orsted A/S surged more than 5%, leading utilities higher after it upped its annual core earnings forecast.

“Overall investors seem pretty pleased with the stimulus situation,” said Connor Campbell, analyst at financial spread better Spreadex.

“Still, somewhat cautious because there is still so much uncertainty over how much central banks over the world have to work with, and how much these rate cuts will help.”

Money markets in the euro zone are pricing a 90% chance that the ECB will cut its deposit rate, now minus 0.50%, by 10 basis points next week.

However, sources told Reuters that policy action was not on the agenda of an unscheduled telephone conference call held by ECB policymakers late on Tuesday to discuss their emergency response to the coronavirus outbreak.

Asia

Hong Kong stocks slipped on Wednesday. At the close of trade, the Hang Seng index was down 62.75 points or 0.2% at 26,222.07. The Hang Seng China Enterprises index rose 0.4% to 10,521.78.

China stocks settled higher on Wednesday as investors hoped for more domestic policy stimulus. The blue-chip CSI300 index rose 0.6% to 4115.05, while the Shanghai Composite Index gained 0.6% to 3011.67 points.

Currencies

Bank of Canada cuts its key rate by 50bps: The Bank of Canada slashed its key interest rate, pointing to “a material negative shock to the Canadian and global outlooks” from the coronavirus.

The dollar index, which measures the greenback’s strength against a basket of six major currencies, was 0.2% higher at 97.3790 at 3.53pm New York time. The index slipped as low as 96.926 the previous day, its weakest level since January 8.

“The [US] dollar has found its feet after a phase of underperformance against the euro and some other major currencies,” Jonathan Coughtrey, managing director at Action Economics, said in a note.

Analysts though were hesitant to call for a big rebound for the dollar.

“The Fed still has more room to cut than other major central banks,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto. “What that means in functional terms is that the dollar’s downside is a little bit larger.”

Commodities

Saudi Arabia and other OPEC members struggled on Wednesday to win support from Russia to join them in additional oil output cuts in a bid to prop up prices which have tumbled by a fifth this year because of the coronavirus outbreak.

A panel of several ministers from OPEC, Russia and other producers failed to clinch a preliminary agreement for additional cuts, OPEC sources said.

At the panel meeting in Vienna, the sources said Russia proposed keeping existing cuts by the group known as OPEC+ until the end of the second quarter.

Saudi Arabia wants extra cuts of 1 million to 1.5 million barrels per day (bpd) for the second quarter while keeping existing cuts of 2.1 million bpd in place until the end of 2020.

Australian sharemarket

The S&P/ASX 200 Index dropped 110.3 points, or 1.7 per cent, 6325.4 points, leaving the benchmark 11.7 per cent below its February 20 high.

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