Fed’s ‘whatever it takes’ bond pledge boosts Asia stocks

Asia Pacific stocks rallied after the US central bank made a commitment to buy the amount of government bonds needed to protect the economy from the impact of the coronavirus pandemic.

However, investors were skeptical that the Federal Reserve’s commitment to buy an endless supply of Treasury bonds would lead to a sustained rebound in troubled global markets, indicating that there is little evidence to indicate that the epidemic of Covid-19 slows down and a budget program of $ 2 billion US is still stalled in Congress. .

In Asian trade on Tuesday, the Japanese benchmark Topix and the Australian S & P / ASX 200 rose around 1.7% each. The South Korean Kospi rose 5.2%, while the CSI 300 in China and the Hang Seng in Hong Kong increased by 3.5 and 3.6% respectively.

US futures markets indicated a 2.7% gain for the S&P 500 benchmark later today.

Overnight on Wall Street, the S&P 500 closed another volatile session with a loss of 2.9%. The US dollar, which surged in the midst of the coronavirus crisis, weakened in Asian trade after the Fed’s announcement.

“Now is the time” whatever it takes “for the Fed,” wrote analysts at Invesco, referring to the 2012 commitment by European Central Bank governor Mario Draghi to save the euro. It was “one of the most aggressive monetary easing programs in the history of the central bank,” they noted.

Global markets have been squeezed in recent weeks by fears that the coronavirus epidemic will cause a global recession. The pandemic has closed supply chains and industries across much of the world, restricting the movement of billions of people.

Tuesday’s rebound “may well be short lived,” said a hedge fund manager in Tokyo. “Sure, you can point to different initiatives from governments and central banks, but it’s still a scene where markets don’t know enough about what’s going on in a month to make a firm call.”

Economists have said that a stronger political response from governments is still needed. A $ 2 billion stimulus package against coronaviruses continued to flounder in the Senate on Monday as Democrats insisted on tougher limits on how big companies use coronavirus rescue funds. President Donald Trump later said that an agreement was “getting closer.”

“In order for the US economy to emerge from the current crisis and the relatively free current recession, more radical political intervention will be needed in the coming weeks,” said Anna Stupnytska, global head of macro-strategy and investments at Fidelity International. .

The sovereign bond markets have changed little, with the 10-year US Treasury yield increasing 2 basis points to 0.802%. The price of brent crude, the international marker for oil, rose 2.4% to 2.4%.

In Japan, the performance of the Nikkei 225 and Topix indices continued to diverge, with traders pointing to the outcome of a series of long-short trades. The Nikkei jumped more than 5% compared to the rise of Topix by less than 2%, due to the greater weighting of the technology group SoftBank in the former.

SoftBank shares gained more than 15% a day after the company announced that it would sell $ 41 billion in assets to finance a record share buyback. Jefferies analyst Atul Goyal called the decision “music to our ears” and made his recommendation on the title “buy”.

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