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European stocks surged on Wednesday as the Bank of England surprised markets with the timing and size of an interest-rate cut, as expectations also built on a U.S. fiscal response.
The Stoxx Europe 600 SXXP, +1.41% jumped 1.47% to 340.57.
The U.K. FTSE 100 UKX, +1.14% increased 0.89% to 6013.33, and the yield on the U.K. 10-year gilt rose 4 basis points to 0.29%. Yields move in the opposite direction to prices.
In a shock move, the Bank of England cut interest rates by a half point, to just 0.25%. A few analysts had expected a rate cut to coincide with the presentation of the U.K. budget, due later on Wednesday, though most said the central bank would wait until its scheduled meeting on March 26.
“Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months,” the central bank said.
Peter Dixon, senior economist at Commerzbank said: “Not only was the timing a complete surprise but the magnitude was more than we expected.”
U.K. financials rose following the rate cut. Asian-focused bank Standard Chartered STAN, +3.72% rose over 3%, and Lloyds Banking Group LLOY, +2.30% rose 2.9%.
U.S. stock futures however were lower, with the Dow industrials YM00, -1.65% down over 300 points. Continuing the volatile trade, the Dow DJIA, +4.89% surged 1167 points on Tuesday as President Trump started talks with Senate Republicans on a possible plan to cut payroll taxes. House Democrats have instead expressed support for measures including paid sick leave for workers who need to self-quarantine and enhanced unemployment insurance.
The broader context to financial markets is the coronavirus that has infected more than 119,000 people worldwide, killing 4,289. The virus has surpassed 10,000 cases in Italy and essentially locked down the nation of 62 million people.
Apparel maker Adidas ADS, -7.16% shares slumped over 5% after saying the virus was hitting the business in China after a strong first three weeks of the year. Adidas said excluding that impact, its expects up to 8% sales growth on a constant currency basis and up to 13% profit growth this year.
“As the situation keeps evolving, the further recovery in Greater China, the extent of spillover into other countries as well as the availability of raw materials remain largely uncertain. In light of these uncertainties, the overall impact of the coronavirus outbreak on the company’s business in 2020 cannot be quantified reliably at this point in time,” said Adidas in a statement.
Puma PUM, -6.87% , its rival, fell 4% after saying something similar, that sales in China have been severely affected and that a “short-term normalization will not occur.”
