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Markets turbulent as Fed cuts rates on coronavirus fears

Oscar Williams-Grut and Edmund Heaphy
·2-min read
Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee on Capitol Hill in Washington, Wednesday, Feb. 12, 2020, during a hearing on the Monetary Policy Report. (AP Photo/Susan Walsh)
Jerome Powell, the chairman of the US Federal Reserve, which cut interest rates on Tuesday. (AP Photo/Susan Walsh)

Stocks climbed on Tuesday after the US Federal Reserve cut interest rates by 50 basis points and warned that coronavirus posed “evolving risks to economic activity.”

In the US, the S&P 500 (^GSPC) was up by almost 0.5%, while the Dow Jones Industrial Average (^DJI) climbed by around 0.3%, reversing earlier losses. Shares on the Nasdaq (^IXIC) were up by around 0.3%.

European stocks, which climbed after G7 finance ministers and central bankers said they were “ready to take actions” to counter the negative economic effects of the epidemic, continued their ascent.

The FTSE 100 (^FTSE) was up 1.8% by around 3.30pm GMT, the German DAX (^GDAXI) climbed by almost 2%, and the French CAC 40 (^FCHI) rose by around 1.8%.

The Fed, which announced the unanimous decision after an emergency meeting of its rate-setting Open Market Committee, said it was still “closely monitoring” developments and would “act as appropriate to support the economy”.

“The fundamentals of the US economy remain strong,” it said.

Federal chair Jerome Powell and US Treasury secretary Steven Mnuchin had earlier led a call with the G7 finance ministers and central bank governors, where they discussed a co-ordinated response to the outbreak.

The G7 members said in a joint statement shortly after the call they were “ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase.”

“G7 Finance Ministers and Central Bank Governors stand ready to cooperate further on timely and effective measures,” read a joint statement issued by the US Treasury, which currently holds the G7 chair.

The OECD on Monday warned coronavirus is the biggest threat to global growth since the 2008 financial crisis. The group said GDP growth could be as low as 1.5% this year if the epidemic transforms into a pandemic.

Read more: Bank of England's Carney promises 'powerful and timely' coronavirus response

Separately on Tuesday, Bank of England governor Mark Carney said to expect a “powerful and timely” response that will include “a combination of fiscal measures and central bank initiatives”.

Possible actions could include additional spending by governments, the buying up of debt, lending to banks to ease liquidity pressures, or even a coordinated interest rate cut, something not seen since the financial crisis.

European Central Bank (ECB) president Christine Lagarde said in a statement on Monday night the ECB is “closely monitoring developments” and stands “ready to take appropriate and targeted measures.”

Overnight in Asia, Japan’s Nikkei (^N225) closed down 1.2%, the Hong Kong Hang Seng closed flat (^HSI), while the Shanghai Composite (000001.SS) ended up 0.7%. Australia’s central bank cut interest rates by 25 basis points in response to the spread of coronavirus.

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