Virus, what virus? Global financial markets weathering the storm

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After more than a week of turmoil on the world’s financial markets as investors panicked about the impact of the coronavirus on the global economy, things are suddenly starting to look a lot less gloomy.

“Virus, what virus?” has been the theme over the past 48 hours as markets start to rebound on the back of the decision by China’s central bank to inject almost $243 billion (R3.6 trillion) in an effort to stabilise financial market expectations and restore market confidence.

Rapid response to China’s central bank boost

Markets responded rapidly and positively. The Nasdaq hit a record high on Tuesday February 4 2020 and then repeated the feat again on Wednesday 5 February, while on Tuesday, the S&P 500 posted its biggest one-day gain in almost six months as fears of a heavy economic impact from the coronavirus outbreak diminished.

Australia’s ASX also showed good gains and achieved its best performance in almost a month on Thursday 6 February.

In line with most emerging markets, which rose for the second consecutive day after losing 6% in value over the preceding eight days, the Johannesburg Stock Exchange (JSE) was looking forward to a third straight day of gains on Thursday.

Markets remain fickle and jumpy at this time

But analysts and investors are well aware that the markets are fickle and panic easily, particularly at times like this.

So any further bad news around the spread of the coronavirus, which has already killed about 500 people, would likely spark a new round of panic selling and a return to gold. So too would any likelihood of a further slowdown in the Chinese economy. 

In response, gold has begun trading lower as investors move back into the financial markets and away from the precious metal.

 “No amount of stimulus packages will work if citizens stop consuming goods and services and stay at home and hoard their money. Just ask Japan,” pointed out Jeffrey Halley, a senior market analyst at Oanda, a New York-based forex trading company.

“Markets are still cautious, but perhaps this small move is on the back of a really strong rally,” said Izidor Flajšman, emerging markets associate at TD Securities, quoted by Reuters.

Is the end of the panic in sight?

Markets seem to be believing that a coronavirus turning point is in sight and that normality will return to the markets sooner rather than later.

“It is unlikely to take much longer before even the final investor has extrapolated the falling infection rate and comes to the conclusion that the turning point in the number of infected will soon be reached,” an analysts at Frankfurt-based Commerzbank wrote in a note.

Meanwhile, Australian broadcaster ABC reported that markets had “shrugged off concerns about the virus outbreak and its economic impact”.

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