Asian stocks rise after US Federal Reserve pledges support
Asian stock markets have gained after the US Federal Reserve promised support to the struggling economy as congress delayed action on a two trillion dollar (£1.72 trillion) coronavirus aid package.
Market benchmarks in Tokyo and South Korea rose nearly 6%, while Shanghai, Hong Kong and Australian markets also gained.
Traders were encouraged by the Fed’s promise to buy as many Treasury securities and other assets as needed to keep financial markets functioning.
That came as Wall Street fell 3% after US congress failed to approve an economic support package. It would send cheques to US households and offer support for small businesses and the hard-hit travel industry, but Democrats say it favours companies too heavily at the expense of workers and public health.
Stephen Innes of AxiCorp said in a report: “Asian investors like what they see from an all-in Fed which is being viewed in a very impressive light for both Main and Wall Street, even as the US congress dithers.”
The Nikkei 225 in Tokyo rose 5.9% to 17,884.57 and Seoul’s Kospi gained 5.9% to 1,571.00. The Shanghai Composite Index rose 1.1% to 2,688.40.
The Hang Seng in Hong Kong was 3.8% higher at 22,513.57 and Australia’s S&P-ASX 200 gained 3.4% to 4,700.90. India’s Sensex opened 1.2% higher at 26,281.86 and New Zealand and Singapore also advanced.
Also Tuesday, a measure of this month’s Japanese factory activity fell to its lowest level since 2009 in another sign of the virus’s impact.
The preliminary version of the Jibun Manufacturing Purchasing Managers’ Index fell to 44.8 from February’s 47.8 on a 100-point scale on which numbers below 50 show activity contracting.
The Fed’s promise goes beyond the 700 billion dollars (£603 billion) in asset purchases announced last week.
The central bank said it will buy a wide range of investments, including corporate bonds for the first time, to improve trading in markets which help home buyers finance the purchase of houses, state and local governments borrow, and businesses to get enough short-term cash to make payroll.
“The pressure is now on congress to get its act together and provide the support that the Fed cannot do — helping the vulnerable people who face the biggest health and economic consequences,” said James Knightley of ING in a report.
“The risk is that this wall of support from the Fed and the positive reaction in markets may give Congress a sense that it has more time and the pressure to deliver a package is reduced.”
Wall Street and some other stock markets have lost nearly one-third of their value over the past month as business shutdowns spread and airlines, retailers and other industries suffer rising losses.
Economists increasingly say a recession seems inevitable. Analysts are slashing their forecasts for upcoming corporate profits. Forecasters say they cannot project how deep the downturn might be or how long it will last.
Professional traders say investors need to see a decline in numbers of new infections before markets can find a bottom.