* European shares and S&P futures bounce after worst day
since Oct
Asia falls again but finishes off lows
* Safe-haven demand strong after risk assets sell off
* Yen steadies after surge, yuan licks wounds
* Oil down 18% from year's highs
*
* World FX rates in 2020 http://tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Jan 28 (Reuters) - European markets rebounded early
on Tuesday after the previous day's thumping, which saw
investors worried about the economic fallout from the
coronavirus outbreak in China huddle in safe-haven assets.
There was relief as Europe's STOXX 600 .STOXX and Wall
Street futures bounced as much as 0.5% from their closing levels
on Monday, which was the worst day for world stocks since
October. .MIWD00000PUS
Chinese markets remain closed all week, but the 0.5%
overnight drop in Tokyo's Nikkei was more modest than Monday's
and many of Asia's other bourses that were open rallied from the
day's lows too.
Brent oil prices stabilised above $59, safely above their
three-month low of $58.50 and 10-year U.S. Treasury yields
stabilised above 1.60% after briefly dipping below that level on
Monday.
In the FX markets, Japan's safe-haven yen slipped back and
dollar/yen recaptured 109, while China's yuan strengthened from
Monday's three-week low in international 'offshore' markets.
/FRX
"We saw a bit of a bounce back overnight in the most high
volume liquid assets like the S&P 500 futures, but its hard to
find anything to hang your hat on because we still need to
assess the risks," said Saxo Bank's head of FX strategy John
Hardy.
As the death toll from the flu-like virus reached 106 in
China, the country extended the Lunar New Year holiday to Feb. 2
nationally, and to Feb. 9 for Shanghai.
China's largest steelmaking city Tangshan, in northern Hebei
province, suspended all public transit in an effort to prevent
the spread of the virus. MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS had ended down 0.8%. Japan's Nikkei .N225 ,
which was down nearly 1% at one point, closed 0.6% lower.
Australian shares .AXJO ended 1.3% down and South Korea's
Kospi index .KS11 skidded 3%.
In an indication of the size of losses for Chinese stock
markets when they re-open, iShares China Large-Cap ETF FXI.P
sank 4% on Monday. It is down about 10% since Jan. 17, when
worries began to intensify about the virus which emerged in the
central Chinese city of Wuhan.
"The wild card is not the fatality rate, but how infectious
the Wuhan virus is," Citi economists wrote in a note. "The
economic impact will depend on how successfully this outbreak is
contained."
Moreover, as major companies report potential business
disruptions and governments advise against unnecessary travel to
and within China, analysts are trying to compute how much the
disruption could damage growth.
APPLE EYED
Tech titan Apple is due to report results later AAPL.O ,
and its plan to ramp up iPhone production by 10% in the first
half of this year will be the top question as the coronavirus
outbreak spreads across major markets like China.
"The market will continue to watch the number of how many
people become infected," said Christian Lenk, an interest rates
strategist at DZ Bank.
"But the interesting part will be how much the virus and the
contamination efforts of the Chinese government will hamper
supply chains and growth and that is really hard to grasp in the
short term."
Some investors have dipped their toes in guessing that
inflation will be weaker, with market gauges of long-term
expectations falling to their lowest in 1-1/2-months in the euro
zone at 1.2640%. EUIL5F5Y=R
The yield on the benchmark German Bund was flat at -0.385%
DE10YT=RR, though not far from the three-month low -0.391% it
fell to on Monday. Yields across other European markets,
including Italy and Spain, were also stable.
In the United States, a two-day Federal Reserve meeting
starts later. The market consensus is that the central bank will
keep interest rates unchanged at between 1.5% and 1.75% but all
attention will be on whether it thinks about the virus woes.
Chinese authorities may also have more limited room to
stimulate the economy than it had during the 2002-03 outbreak of
the Severe Acute Respiratory Syndrome (SARS) virus, another
reason investors were jittery.
Treasury 10-year note yields US10YT=RR were off lows after
diving as deep as 1.598%, the lowest since Oct. 10, while Fed
fund futures 0#FF: have rallied in recent days as investors
priced in more risk of a rate cut later this year.
Futures now imply around 35 basis points of easing by
year-end FEDWATCH .
JPMorgan said it has not yet altered its developed or
emerging markets forex forecasts though it was taking profits on
"bullish" EUR/USD positions and remains "considerably long" on
Swiss francs, which benefit from safe-haven demand.
Short build-up in the Aussie was another risk hedge. The
currency was last flat at $0.6760 after two straight days of
losses. The euro EUR= was a shade firmer at $1.1022 while the
yen's dip looked set to end five straight sessions of gains.
In commodities, Brent crude LCOc1 was off 12 cents at
$59.20 while U.S. crude CLc1 eased 2 cents to $53.12. Brent is
now down 18% from a spike caused by the U.S. killing of Iran's
top military commander at the start of the year.
Spot gold XAU= was a shade weaker at $1,579.28 having
climbed to its highest since 2013 on Monday.
"(Gold) could reach $1,600, but would be more around the
$1,570-$1,590 levels as we need to get more information, there
are a lot of unknown variables around the virus," said John
Sharma, an economist at National Australia Bank (NAB).
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>