By Herbert Lash
NEW YORK (Reuters) – The dollar strengthened and a gauge of 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%, 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%, 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.
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%, 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% to the lowest since November and Australia’s benchmark index fell 1.3%.
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% of the U.S. economy.
Joseph LaVorgna, chief economist for the Americas at French bank Natixis in New York, said he was bullish on the U.S. economic outlook and that capital expenditures by corporations should pick up.
“The ISM helped. It was better than expected. We’re still in a bull market, there’s still a buy-the-dip mentality,” LaVorgna said, though he acknowledged “the coronavirus can still play havoc; you got to be worried.”
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 0.31% and its emerging market index lost 0.14%.
The pan-European STOXX 600 index rose 0.25%.
The major Wall Street indexes advanced in a broad rally.
The Dow Jones Industrial Average rose 143.78 points, or 0.51%, to 28,399.81. The S&P 500 gained 23.4 points, or 0.73%, to 3,248.92 and the Nasdaq Composite added 122.47 points, or 1.34%, to 9,273.40.
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 $1.2993, down 1.56% on the day and the dollar index rose 0.45%.
The euro down 0.31% to $1.1059, while the yen weakened 0.26% versus the greenback at 108.69 per dollar.
Benchmark 10-year notes last fell 2/32 in price to lift their yield to 1.5238%.
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% to $1,576.30 an ounce. U.S. gold futures settled 0.3% lower at $1,582.40.
(GRAPHIC- MSCI All Country Wolrd Index Market Cap link: https://tmsnrt.rs/2EmTD6j).
(Graphic: World FX rates link: https://tmsnrt.rs/2egbfVh).
(Reporting by Herbert Lash, additional reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Nick Zieminski and Lisa Shumaker)