Asia stocks rebound after Fed launches limitless spending against coronavirus hit; STI up 3.5%

Pedestrians walk in front of quotation board displaying the share price numbers of the Tokyo Stock Exchange in Japan on March 19, 2020.
Pedestrians walk in front of quotation board displaying the share price numbers of the Tokyo Stock Exchange in Japan on March 19, 2020.PHOTO: AFP

SYDNEY (REUTERS) - Asian stocks rebounded sharply on Tuesday (March 24) as the US Federal Reserve's promise of limitless asset purchases eased painful strains in financial markets, even if it could not offset the immediate economic hit of the coronavirus.

The region was also up on hopes that US lawmakers will bridge their differences and pass a US$1.8 trillion (S$2.6 trillion) economic support package.

While Wall Street overnight seemed unimpressed, investors in Asia were encouraged enough to lift E-Mini futures for the S&P 500 by 3 per cent and Japan's Nikkei 5.9 per cent. 

MSCI's broadest index of Asia-Pacific shares outside Japan jumped 4.2 per cent, to more than halve Monday's drop. Shanghai blue chips gained 1.2 per cent, while Hong Kong's Hang Seng rose 3.8 per cent .

Europe also looked a shade brighter as EUROSTOXXX 50 futures climbed 3.3 per cent and FTSE futures 3.1 per cent.

Singapore's Straits Times Index jumped 4 per cent on opening, before easing to trade 3.5 per cent higher at 1:35pm. The blue-chip index sank 7.4 per cent on Monday in its biggest one-day drop since a record 8.3 per cent plunge on Oct 24, 2008, during the global financial crisis.

South Korea and Australia also recouped some of their recent losses, rising 6.5 per cent and 4.2 per cent respectively.

In its latest drastic step, the Fed offered to buy unlimited amounts of assets to steady markets and expanded its mandate to corporate and muni bonds.

The numbers were certainly large, with analysts estimating the package could make US$4 trillion or more in loans to non-financial firms.

 

"This open-ended and massively stepped-up programme of QE is a very clear signal that the Fed will do all that is needed to maintain the integrity and liquidity of the Treasury market, key asset-backed markets and other core markets," said David de Garis, a director of economics at NAB.

"Covid-19 developments remain the wild card, as is the development of government policies to support cash flow and the economy."

The Fed's package helped calm nerves in bond markets where yields on two-year Treasuries hit their lowest sine 2013, while 10-year yields dropped back sharply to 0.77 per cent.

Yet analysts fear it will do little to offset the near-term economic damage done by mass lockdowns and layoffs.

Speculation is mounting data due on Thursday will show US jobless claims rose an eye-watering 1 million last week, with forecasts ranging as high as 4 million.

Goldman Sachs warned the US economic growth could contract by 24 per cent in the second quarter, two-and-a-half times as large as the previous postwar record.

 
 

A range of flash surveys on European and US manufacturing for March are due later on Tuesday and are expected to show deep declines into recessionary territory.

While governments around the globe are launching ever-larger fiscal stimulus packages, the latest US effort remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.

The logjam combined with the stimulus splash from the Fed to take a little of the shine off the US dollar, though it remains in demand as a global store of liquidity.

"The special role of the USD in the world's financial system - it is used globally in a range of transactions such as commodity pricing, bond issuance and international bank lending - means USD liquidity is at a premium," said CBA economist Joseph Capurso.

"While liquidity is an issue, the USD will remain strong."

The US dollar eased just a touch on the yen to 110.90 after hitting a one-month top at 111.59 on Monday, while the euro inched up to US$1.0754 from a three-year trough of US$1.0635.

The dollar index stood at 102.120, off a three-year peak of 102.99.

 
 

Gold surged in the wake of the Fed's promise of yet more cheap money, and was last at US$1,564.51 per ounce having rallied from a low of US$1,484.65 on Monday.

Oil prices also bounced after recent savage losses, with US crude up US$1.09 at US$24.45 barrel. Brent crude firmed 97 cents to US$28.00.