Asia’s stocks are recovering, the Fed is putting endless QE against economic reality

SYDNEY (Reuters) – Asian stocks rallied strongly on Tuesday as the Fed’s promise to fund a bottomless dollar eased painful financial market pressures, although it failed to mitigate the immediate economic impact of the corona virus.

FILE PHOTO: Pedestrians with face masks walk near an overpass with an electronic tablet that displays inventory information after a coronavirus disease (COVID-19) outbreak in the Lujiazui financial district in Shanghai, China, on March 17, 2020. REUTERS / Aly Song

While Wall Street appeared to be unimpressed, investors in Asia were encouraged enough to raise the E-mini futures for the S&P 500 by 3% and the Japanese Nikkei by 6.2%. If maintained, it would be the largest daily increase for the Nikkei since late 2016. [.T]

MSCI’s broadest Asia Pacific non-Japan equity index rose 4.2%, more than halving Monday’s decline. Shanghai blue chips rose 2.7%.

Europe also looked somewhat brighter as the EUROSTOXXX 50 futures rose 3.3% and the FTSE futures rose 3.1%.

In its last drastic move, the Fed offered to buy unlimited amounts of assets for stable markets and expanded its mandate to include corporate and Muni bonds.

The numbers were certainly large, and analysts estimated that the package could borrow $ 4 trillion or more from non-financial corporations.

“This open and massively strengthened QE program is a very clear signal that the Fed will do everything it can to maintain the integrity and liquidity of the treasury market, key asset-backed markets and other core markets,” he said David de Garis, business director at NAB.

The Fed package has helped calm nerves in bond markets, where yields on two-year government bonds reached their lowest level since 2013, while yields on ten-year government bonds fell to 0.79%.

Analysts warned that this would do little to offset the short-term economic damage caused by mass closures and layoffs.

Speculation over rising dates due Thursday will show that US unemployment claims have increased by a million last week, with forecasts of up to 4 million.

Goldman Sachs warned that US economy growth could contract 24% in the second quarter, two and a half times faster than the previous post-war record.

A series of flash surveys on European and US manufacturing in March are scheduled for Tuesday and are expected to show a sharp decline in the recession area.

Surveys from Japan showed that the service sector shrank fastest in March and factory activity fastest in about a decade.

DOLLAR OFF HIGHS

While governments around the world are launching ever larger stimulus packages, the United States’ recent efforts in the Senate have stalled as Democrats said they lacked enough money for hospitals and insufficient funding for large corporations.

The blockade combined with the Fed’s incentive to relieve the US dollar somewhat remains in demand as a global liquidity store.

“The special role of the USD in the world’s financial system – used in a number of transactions worldwide such as commodity prices, bond issues and international bank loans – means that USD liquidity is very important,” said CBA economist Joseph Capurso.

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

Due to the prospect of massive US dollar funding from the Fed, the currency initially fell from 110.56 yen on Monday to 110.38 yen.

The euro recovered 0.8% from a three-year low of $ 1.0635 to $ 1.0805. The dollar index fell 0.4% to 101.720, reaching a three-year high of 102.99.

Commodity and emerging market currencies, which have suffered the most during recent asset routing, also benefited from the Fed’s stable hand. The Australian dollar rose 1.5% to $ 0.5915 and away from a 17-year low of $ 0.5510.

Gold rose as the Fed pledged to make even cheaper money, and most recently rose 1.7% to $ 1,578.45 an ounce after rising from a low of $ 1,484.65 on Monday.

Oil prices also recovered after the recent wild losses. US crude rose $ 1.09 to $ 24.45 a barrel. Brent crude stabilized 97 cents to $ 28.00.

(This story has been redrafted to clarify that Goldman Sachs’ forecast relates to the paragraph 11 edition.)

Our standards:The Thomson Reuters Trust Principles.

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