Wall Street surge on US stimulus expectations carries Asian shares
Fears about downturn seem to ease but analysts worry that state intervention cannot continue indefinitely
Tokyo — Asian shares extended their rally on Wednesday in the wake of Wall Street’s huge rebound as the US Congress appeared closer to passing a $2-trillion stimulus package to mitigate the economic blow from the coronavirus pandemic.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.7% with Australian shares jumping 3.4% and South Korean shares gaining 3.5%. Japan’s Nikkei surged 4.8%.
“Japanese shares have been bolstered by aggressive buying from the Bank of Japan and pension money this week. That has prompted hedge funds to cover their short positions,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
On Tuesday, MSCI’s gauge of stocks across the globe rallied 8.39%, the largest single-day gain since the wild swings seen during the height of the global financial crisis in October 2008. It rose another 0.8% in Asia on Wednesday.
On Wall Street, the Dow Jones Industrial Average soared 11.37%, its biggest one-day percentage gain since 1933. Yet, much of the large gains in stock markets pale in comparison with the brutal sell-off of the past few weeks as investors braced for a deep global recession in the wake of sweeping lockdowns in many countries.
US S&P500 is still down almost 28% from its record peak hit just more than a month ago. Wall Street futures were down 1.1% in early Asian trade.
“Many analysts have recently put out dire economic forecasts, such as annualised rate of 20% fall in US GDP next quarter. Europe and Japan should also see double-digit contractions,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities. “I suspect the outlooks have sunk in among market players already and that the bear market has run about 80% of its course for now.”
Senior Democrats and Republicans in the divided US Congress said on Tuesday they were close to a deal on a $2-trillion stimulus package to limit the economic damage from coronavirus pandemic. But it was unclear when they would be ready to vote on a bill.
Investor fears about a sharp economic downturn appear to be easing somewhat after the US Federal Reserve’s offer of unlimited bond-buying and programmes to buy corporate debt.
“Companies will see their revenues sink and indebted firms will have trouble securing cash, so governments are making the right responses,” said Akira Takei, senior fund manager at Asset Management One.
“The question is, while those responses are necessary in the near term, what if this continues? You can’t keep helping companies that continue to make losses. The longer this drags on, the more likely we will need to adjust to a new normal.”
The biggest uncertainty is how countries can slow the pandemic and how quickly they can lift various curbs on economic activity.
US President Donald Trump pressed his case for a reopening of the US economy by mid-April. But that met immediate scepticism given that the rise of infections in the US is now among the highest in the world, with the total cases reaching more than 50,000, doubling in less than three days recently. In particular, its financial hub of New York City suffered another quick and brutal rise in the number of infections to about 15,000, raising worries about shortages of hospital beds.
In the currency market, the dollar has slipped as a greenback liquidity crunch loosened slightly. The euro traded at $1.0808 up 0.15% after four straight days of gains. The dollar dropped 0.3% against the yen to 110.85, off a one-month high of 111.715 touched the previous day.
Gold ticked up 0.3% to $1,614.5/oz after having soared almost 5%, its biggest gains since 2008, on Tuesday. It was in part helped by concerns that lockdowns in major producer SA could disrupt supply.
Oil prices bounced back as hopes for US stimulus offset fears of falling global demand. India, the world’s third-largest oil consumer, ordered its 1.3-billion residents to stay home for three weeks, the latest big fuel user to announce restrictions on social movement, which have destroyed demand for petrol and jet fuel worldwide.
The market remained pressured by a flood of supply after Saudi Arabia started a price war earlier in March, a move that dealt a crushing blow to markets already reeling from the pandemic.
US crude futures rose 4.5% to $25.10 per barrel. That is up about $5.5, or almost 26%, from their 18-year intraday low of $19.46 touched on Friday. Still, on the month, the market is down 44%.