Asia stocks rise as Fed rolls out infinite bond purchases

Asia-Pacific stocks jumped after the US central bank unveiled plans to buy an unlimited amount of government bonds to support the economy during the coronavirus pandemic.

However, investors remained sceptical that any recovery in battered global markets would be sustainable until there are signs the Covid-19 outbreak is slowing, and as a $2tn US fiscal package again faltered in Congress.

In early trading on Tuesday Japan’s benchmark Topix and Australia’s S&P/ASX 200 each climbed about 3 per cent. South Korea’s Kospi gained 5.9 per cent while China’s CSI 300 and Hong Kong’s Hang Seng added 2.7 per cent and 4 per cent, respectively.

Futures markets pointed to a 2.6 per cent rise for the US stock benchmark later in the day.

Overnight on Wall Street the S&P 500 ended another volatile session 2.9 per cent lower, losing ground despite the Federal Reserve’s pledge to buy an infinite quantity of treasuries in a bid to support the financial system. The Fed also said it would buy corporate debt for the first time. The US dollar, which has surged amid the coronavirus crisis, weakened in Asian trading following the announcement.

Global markets have been crushed in recent weeks by fears the coronavirus outbreak will cause a global recession. The pandemic has shut down supply chains and industries across much of the world, restricting the movements of billions of people.

Tuesday’s rebound “may just be a short-lived thing,” said one hedge fund manager in Tokyo. “Of course you can point to different moves by governments and central banks, but this is still very much a scene where you have markets not knowing enough about what happens in a month’s time to make a solid call.”

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Economists said a stronger policy response from governments was still needed. A $2tn US coronavirus stimulus package remained stalled in the Senate on Monday as Democrats insisted on more stringent limits on how big businesses use coronavirus rescue funds. President Donald Trump later said an agreement was “getting closer”.

“For the US economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks,” said Anna Stupnytska, global head of macro and investment strategy at Fidelity International.

Sovereign bond markets were little changed, with the 10-year US Treasury yield down 2 basis points at 0.77 per cent. 

In Japan, the performance of the Nikkei 225 and the Topix indices continued to diverge, with traders pointing to a series of long-short trades being unwound. The Nikkei surged almost 6 per cent versus the Topix’s climb of 2.9 per cent, with the move driven by the larger weighting of technology group SoftBank in the former.

SoftBank shares gained over 15 per cent a day after announcing that it would sell $41bn in assets to fund a record share buyback. Jefferies analyst Atul Goyal described the move as “music to our ears” and raised his recommendation on the stock to “buy”.


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