Global stocks jumped on Monday, lifted by an unexpected rebound in U.S. manufacturing that helped temper fears that caused stocks overnight in Asia to plunge on the potential impact of the coronavirus in China.
Gold fell 1 per cent, retreating from a four-week high, as China’s efforts to protect its economy from the virus and the injection of 1.2 trillion yuan ($174 billion) worth of liquidity into the markets helped stem inflows into safe-haven assets.
Bond yields rose, while the Japanese yen and Swiss franc retreated as risk sentiment improved despite a rising infection rate and death toll from the outbreak.
Deaths rose to 361 as of Sunday, up 57 from the previous day, China’s National Health Commission said. All deaths have occurred in China, with the exception of a Chinese man who died in the Philippines after traveling from Wuhan, the epicenter of the outbreak.
Oil prices fell about 3 per cent, however, on concerns crude demand from China will take a hit, though the possibility of deeper output cuts by the Organization of the Petroleum Exporting Countries and its allies offered some price support.
Canada’s main stock index rose on Monday after two sessions of declines.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 61.27 points, or 0.35 per cent, at 17,379.76
Domestic data on Monday showed Canadian manufacturing activity expanded in January for the fifth straight month as a measure of new orders rose and business optimism strengthened, but the pace of growth remained sluggish.
The energy sector dropped 0.6 per cent, as oil prices fell after the coronavirus outbreak hit fuel demand in China, the world’s biggest crude oil importer.
The materials sector, which includes precious and base metals miners and fertilizer companies, also lost 0.6 per cent as gold futures fell.
The technology and health care sectors rallied 1.5 per cent and 1 per cent, respectively, to lead gains among the major Canadian sectors.
Leading the index were Aurora Cannabis Inc., up 6.4 per cent, Ballard Power Systems Inc., up 6.3 per cent, and Bombardier Inc., higher by 6.1 per cent.
Lagging shares were Alacer Gold Corp., down 5.5 per cent, OceanaGold Corp., down 4.9 per cent, and Semafo Inc., lower by 4.7 per cent.
The Canadian dollar fell to a two-month low against its broadly stronger U.S. counterpart on Monday as evidence emerged that China’s coronavirus outbreak is slashing demand for oil, one of Canada’s major exports.
The Canadian dollar was trading 0.4 per cent lower at 1.3292 to the greenback, or 75.23 U.S. cents. The currency, which fell 1.9 per cent in January, touched its weakest intraday level since Dec. 3 at 1.3302.
“The loonie continues to slide along with crude oil prices due to reports of substantial demand shocks coming from China,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.
U.S. stocks rallied on Monday, helped by gains in heavyweight technology shares and surprise strength in U.S. manufacturing activity, following a sharp selloff last week sparked by concerns about fallout from a virus out of China.
The Dow Jones Industrial Average rose 142.7 points, or 0.51 per cent, to 28,398.73, the S&P 500 gained 23.34 points, or 0.72 per cent, to 3,248.86 and the Nasdaq Composite added 122.47 points, or 1.34 per cent, to 9,273.40.
Shares in China plunged during the first day of trading since China closed equity, currency and bond markets on Jan. 23 for the Lunar New Year, a break that was extended by the government because of the coronavirus.
The Shanghai Composite index fell 7.7 per cent, slicing $420 billion in value from the benchmark, and the yuan opened at its weakest level this year, sliding past 7 per dollar.
Japan’s Nikkei dropped 1 per cent to the lowest since November and Australia’s benchmark index fell 1.3 per cent.
Shares edged higher in Europe on relief the UK finally exited the European Union, while U.S. stocks advanced as data showed factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders.
The Institute for Supply Management (ISM) said its index of U.S. manufacturing rose to 50.9 last month, the highest since July, from an upwardly revised 47.8 in December.
A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11 per cent of the U.S. economy.
Joseph LaVorgna, chief economist for the Americas at French bank Natixis in New York, said he was fairly bullish on the U.S. economic outlook and that capital expenditures by corporations should pick up.
“The coronavirus can still play havoc, you got to be worried,” LaVorgna said. “The ISM helped, it was better than expected. We’re still in a bull market, there’s still a buy the dip mentality.”
Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said traders were bargain-hunting in anticipation of stimulus from the Chinese government.
“Traders are looking for value where they can,” he said.
MSCI’s gauge of stocks across the globe gained 0.39 per cent and its emerging market index lost 0.11 per cent.
The pan-European STOXX 600 index rose 0.25 per cent.
The pound slid after British Prime Minister Boris Johnson set out tough terms for EU talks, rekindling fears Britain would reach the end of an 11-month transition period without reaching a trade deal.
Sterling traded at $1.2995, down 1.55 per cent on the day and the dollar index rose 0.43 per cent.
The euro down 0.3 per cent to $1.106, while the yen weakened 0.27 per cent versus the greenback at 108.71 per dollar.
Benchmark 10-year notes last fell 2/32 in price to yield 1.5255 per cent.
Oil prices fell. Brent crude fell $2.17 to settle at $54.45 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $1.45 to settle at $50.11 a barrel. Both the global and U.S. benchmarks traded at lows last seen in January 2019.
Spot gold, which posted its best month in five in January, slid 0.85 per cent to $1,576.30 an ounce. U.S. gold futures settled 0.3 per cent lower at $1,582.40.
Reuters