Asian stocks rise after Fed promises support
Wall Street lost nearly a third of its value over the past month
BEIJING, March 24, (AP): Asian stock markets gained Tuesday after the US Federal Reserve promised support to the struggling economy as Congress delayed action on a $2 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 Treasurys and other assets as needed to keep financial markets functioning.
That came as Wall Street fell 3% after Congress failed to approve an economic support package. It would send checks to US households and offer support for small businesses and the hard-hit travel industry, but Democrats say it favors companies too heavily at the expense of workers and public health.
“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,” said Stephen Innes of AxiCorp. in a report.
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 coronavirus’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 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 that 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,” Knightley said.
As Congress was locked in stalemate, the number of known infections worldwide jumped past 380,000. After just a few weeks, the United States has more than 46,000 cases and more than 600 deaths. For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough. Those with mild illness recover in about two weeks. Severe illness including pneumonia can occur, especially in the elderly and people with existing health problems. Recovery could take six weeks in such cases.
Also Monday, trading on the New York Stock Exchange went all-electronic for the first time after the trading floor was temporarily closed as a precaution. The exchange announced the move last week after two employees tested positive for the virus. The number of floor traders had dwindled sharply in recent years as more trading become electronic.
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.
Congress debated through the weekend on the rescue plan, but White House officials and congressional leaders are struggling to finalize it. Democrats blocked a vote to advance the package Monday. They want to steer more assistance for public health and workers.
On Wall Street, the benchmark S&P 500 index 2.9% to 2,237.40 in another day of sudden swings. It was down as much as 4.9% and as little as 0.2% earlier in the day.
The Dow Jones Industrial Average fell 3% to 18,591.93. The Nasdaq, which is dominated by technology companies, lost only 0.3% to 6,860.67 as tech shares held up better than the rest of the market.
In energy markets, benchmark US crude rose 96 cents to $24.32 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, added 98 cents to $28.01 per barrel in London.
The dollar declined to 110.33 yen from Monday’s 111.23. The euro gained to $1.0795 from $1.0721.
Stocks fell about 3% on Wall Street Monday as Congress hit another roadblock in talks to inject nearly $2 trillion into the economy. Even an extraordinary flood of support from the Federal Reserve wasn’t enough to lift stocks, as frustration with Washington and the number of coronavirus cases rise.
Another attempt to advance the aid bill on Capitol Hill failed in an afternoon vote. The plan would send checks to US households and offer support for small businesses and the hard-hit travel industry, among other things, but Democrats say it too heavily favors corporations at the expense of public health and workers.
As Congress was locked in stalemate, the number of known infections worldwide jumped past 350,000. After just a few weeks, the United States has more than 35,000 cases and more than 400 deaths.
“The Fed is only important to the extent that it keeps the markets running smoothly,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “It’s completely up to the federal government, and I mean Congress and the executive branch, at this point.”
With Monday’s losses, the stock market has lost more than a third of its value since its record last month, as more businesses shut down in hopes of slowing the spread of the coronavirus. Economists increasingly say a recession seems inevitable, analysts are slashing their forecasts for upcoming corporate profits and no one can say for sure how deep it will be or how long it will last.
Markets are likely to remain incredibly volatile as long as the number of new infections accelerates. Until then, investors are looking for both central banks and governments to do their parts to support the economy.
The Fed came through Monday, saying it would buy as many Treasurys and mortgage-backed securities as it takes to stabilize bond markets. It goes way beyond the $700 billion in purchases announced last week, which economists called a “bazooka” of support.
It also said it will buy corporate bonds and other investments to help improve trading in markets. Investors are rushing to sell what they can to raise cash, which has caused prices for even high-quality bonds to fall and trading to get snarled.
“This is excellent, comprehensive, covering many areas of the financial markets, their function, the flow of credit - this is exactly what was needed,’’ said Donald Kohn, former Fed vice chair and now senior fellow at the Brookings Institution. “The Fed has hit it out of the park as far as I’m concerned.’’
“The key issue now is getting the fiscal response straight,’’ said Kohn, saying that Congress needs to finance a stabilization fund to back up the Fed’s efforts.
On that point, Congress debated through the weekend on the rescue plan, but top White House officials and congressional leaders are struggling to finalize it. Democrats blocked a vote to advance the package Monday, trying to steer more of the assistance to public health and workers.
Still, optimism remains that they’ll get to a compromise.
“If the alternative is crashing the plane, then you’ll do everything you can to not crash the plane,” said Thomas Martin, senior portfolio manager at Globalt. “Ultimately the government will get there.”
Even if the two sides find a compromise, Congress may need to go through more rounds of similar negotiations if the outbreak isn’t brought under control.
“It’s battlefield dressing meant to keep the patient alive, but more will be needed to be done before a complete healing is accomplished,” said Sam Stovall, chief investment strategist a CFRA.
“What we need to do is arrest the spread of the coronavirus – flatten the curve, if you will – and at the same time flatten consumers’ anxiety, because we could simply end up seeing a rotation in frenzied buying from toilet paper to other commodities, and conceivably bank accounts.”
The S&P 500 lost 67.52 points, or 2.9% to 2,237.40 in another day of sudden swings. It was down as much as 4.9% and as little as 0.2% earlier in the day. Before trading opened, futures for the S&P 500 swung from a loss of 5% to a gain following the Fed’s announcement, a microcosm of the extreme volatility dominating the market in recent weeks.
For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough, and those with mild illness recover in about two weeks. Severe illness including pneumonia can occur, especially in the elderly and people with existing health problems, and recovery could take six weeks in such cases.