Stock markets in Europe opened tentatively at the start of trading today as investors continued to consider the US Federal Reserve cutting interest rates.
London’s benchmark FTSE 100 index of major blue-chip companies rose 0.1 per cent in initial deals to 6,726 points compared with the close yesterday.
The index had risen for two straight days before today, after coronavirus panic wiped more than £251billion off the value of Britain’s biggest companies last week.
In the eurozone, Frankfurt’s DAX 30 index retreated 0.2 per cent to 11,963 points, while the Paris CAC 40 also lost 0.2 per cent to 5,381.
Interest rates in Britain could be cut in response to the coronavirus outbreak, with Bank of England governor Mark Carney indicating it might be on the cards.
TODAY: The FTSE 100 index rose 0.1 per cent in initial deals to 6,726 points this morning
However most Asian equities rose today, brushing off a Wall Street sell-off fuelled by concerns that the US central bank was panicking.
Yesterday, Mr Carney indicated a rate cut could be on the cards for the UK.
Giving evidence to the Treasury committee for the final time before he steps down as governor on March 15, Mr Carney revealed the Bank is considering whether to cut official interest rates from 0.75 per cent.
He told MPs the Bank’s monetary policy committee is ‘assessing the economic impacts and considering the policy implications’.
A cut would drive down the cost of borrowing for households and businesses, giving them breathing space if the economy slows down.
Asked by MPs if a cut was imminent, Mr Carney indicated a decision would not be made before March 26.
His appearance came just hours before the US Federal Reserve announced it was cutting rates by half a percentage point to a target range of between 1 per cent and 1.25 per cent.
In a statement, it said: ‘The fundamentals of the US economy remain strong. However the coronavirus poses evolving risks to economic activity.’
The move follows a series of angry tweets sent by Donald Trump to the US Fed’s chairman Jerome Powell urging him to take action.
PAST 10 DAYS: The FTSE has risen again this week after losing £251billion in value last week
Mr Trump – who days ago dismissed fears of a US coronavirus outbreak as ‘fake news’ whipped up by the Democrats and media – has been urging the US Fed to cut rates further.
He tweeted: ‘It is finally time for the Federal Reserve to LEAD. More easing and cutting!’
But instead of reassuring financial markets, the Fed’s shock move spooked investors on Wall Street and the Dow Jones slumped 3.1 per cent.
Mr Carney yesterday also warned the coronavirus could trigger a ‘large’ economic shock but insisted the impact will ‘ultimately be temporary’.
Stocks in New York had tumbled overnight following the unexpected move by the Fed which sought to combat economic fallout from coronavirus.
A trader works at the closing bell at the New York Stock Exchange on Wall Street yesterday
The decision appeared to have alarmed rather than soothed investors already worried about economic growth amid the fast-spreading virus outbreak.
It also followed a call between G7 finance ministers, which said they would use ‘all appropriate policy tools’ to keep the virus epidemic from throttling growth.
Analysts questioned the Fed’s timing. ‘The decision by the Fed was misguided from an image point of view as it gave off the impression they are extremely worried about the coronavirus situation,’ said CMC Markets analyst David Madden.
‘And that’s why US stocks fell, as traders picked up on that nervousness. Cutting rates in a rushed fashion projects the wrong image.’
He added that the reduction also meant that with borrowing costs already low, the bank had limited its scope for action in future.
A woman wears a mask as a precaution against coronavirus on a street in London yesterday
Despite the broad gains, observers pointed out that the effect of central bank action was limited and world leaders needed to work together to battle the outbreak, which has killed around 3,200 people and infected more than 93,000.
‘As the spread of the coronavirus continues and the chances of containment become slimmer, the impact on the global economy is likely to be sizeable,’ said Anna Stupnytska, of Fidelity International.
‘While easier monetary policy helps sentiment, central banks should not be acting in isolation – the governments should step in with fiscal measures that are timely and well designed, supporting the economies that struggle not just from the virus itself but also from preventative measures that – in some cases – have ground activity to a halt.’
Yesterday also saw Australia and Malaysia cut rates, while other banks are expected to soon follow suit.