Stocks rise on Wall Street, but China’s main market dives

Marco Green
February 4, 2020

Shares edged higher in Europe on relief the United Kingdom finally exited the European Union, while US stocks advanced as data showed factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders.

The dollar strengthened and a gauge of global stocks jumped, lifted by an unexpected rebound in USA manufacturing that helped temper fears that caused stocks overnight in Asia to plunge on the potential impact of the coronavirus in China.

At 10:16 a.m. ET, the Dow Jones Industrial Average was up 319.06 points, or 1.13%, at 28,575.09, the S&P 500 was up 35.54 points, or 1.10%, at 3,261.06.

The Dow and the S&P 500 reportedly experienced "their worst day since October", Monday, and airline stocks dropped.

About 7.7 billion shares changed hands in USA exchanges, slightly above the daily average over the last 20 sessions. Economists polled by Dow Jones expected a contraction in manufacturing activity for January. The benchmark rate climbed back to around 1.52% on Monday.

The Institute for Supply Management said Monday that its manufacturing index rose to 50.9 in January from 47.2 in December.

"Investors are looking beyond the potential negative impacts of the coronavirus", said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

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.

Bond prices fell sharply, sending yields higher.

"This is just the beginning of help from the PBOC, but if we continue to see the virus have over 20% daily increases in both the death toll and number of cases, this will just become another dead-cat-bounce".

"A large part of what we're seeing in the market today is bargain-hunting in anticipation of a return to stimulus from the Chinese government", he said.

China's stock markets reopen tomorrow after being closed since January 23 for the Lunar New Year holiday.

The Shenzhen Component Index closed at 9,779.67 points, down 902.23 points, or 8.45 percent. Japanese stocks also declined Monday, with the Nikkei 225 pulling back by 1%.

Nine of the main 11 S&P 500 industry groups fell for the week.

But Mohamed El-Erian, chief economic advisor at Allianz, advised investors to hold off on adding equity exposure at this point. It is likely to paralyze China. "It's going to cascade into the global economy", El-Erian told CNBC's "Squawk Box" on Monday.

The S&P index recorded 17 new 52-week highs and five new lows, while the Nasdaq recorded 37 new highs and 36 new lows. "We should try and resist our inclination to buy the dip".

Other reports by Click Lancashire

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