Limitless Fed QE drives 2% stock jump and soothes the dollar

LONDON (Reuters) – Global stocks rallied nearly 2% on Tuesday after hitting a four-year low and the dollar slipped as investors hoped for unprecedented economic moves from the Federal Reserve and other policymakers to address the Reduce burdens on the financial markets.

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 measures such as the Fed’s offer to buy unlimited bonds that won’t immediately alleviate the economic devastation caused by the outbreak of the corona virus, they will bring more dollars to world markets and give companies, funds and banks access to cash to creditors and suppliers to pay and end investors.

The prospect hadn’t fueled Wall Street for long on Monday, with losses of 2-3% on major indices, but sentiment improved on Tuesday, possibly as many other central banks and governments were ready to join the fight. Wall Street futures indicated that stocks opened 4% higher, while a Europe-wide stock index also saw a similar increase.

“Today there is a strong recovery in connection with the move by the Fed to launch this massive weapon,” said Francois Savary, CIO of asset manager Prime Partners, noting that the Fed had to resolve the seizure of finance markets primarily.

“Ultimately, the main problem is that we have to deal with a credit market that is completely closed. First, they had to stop this rise in bond yields … second, they had to make sure that the loan had a liquidity return, then they were stocks – in that order. ”

The Fed will not only buy unlimited assets, it will also extend its mandate to corporate and local government bonds and withhold a number of other measures that analysts estimate will provide loans to non-financial corporations of more than $ 4 trillion.

There was also evidence of Congress progress on a $ 2 trillion US economic deal that Treasury Secretary Steven Mnuchin hoped was “very tight.”

Other countries are unveiling their own measures – South Korea’s devastated market grew 8.6% after the government doubled a proposed economic bailout to 100 trillion won ($ 80 billion).

In China, mainland stocks posted the largest increase in three weeks, climbing almost 3%, while the Japanese Nikkei gained 7%, the largest daily gain since February 2016.

Not everyone was optimistic that the lively mood would last, for example that the worldwide coronavirus infections are now over 350,000 and numerous countries are blocked. China also saw an increase in new infections from abroad.

(Graphic: China’s coronavirus cases JPG, here)

“Markets continue to recover from the latest political announcements and will slide again when the economic reality of the situation emerges,” said Deutsche Bank strategist Jim Reid.

Nevertheless, the plan calmed nerves in bond markets, where yields on two-year government bonds reached their lowest level since 2013. Ten-year yields were 0.8339%, compared to last week’s high of 1.28%. Yields rose on Tuesday as stocks rose.

EVERYTHING ABOUT THE ECONOMY

A series of downgrades to growth forecasts and lectures on Purchasing Managers’ Indexes (PMI) in the world’s largest economies shows how much the virus has affected the global economy.

German activity fell to its lowest level since the 2009 crisis, reflecting a decline in record services, while French activity fell to an all-time low. Japan saw the largest decline in services so far.

“Economies around the world are going offline and this is devastating for economic activity. This is leading to the most robust relocation of financial markets in vivid memory,” said George Boubouras, research director at K2 Asset Management in Melbourne.

However, the prospect of massive funding from the Fed initially depressed the greenback against its competitors by 0.5% after three-year highs. It fell similarly to the yen and fell 1% against the euro.

Commodity and emerging market currencies also benefited: the Australian dollar rose nearly 2% to $ 0.59315, well below the 17-year lows.

There was also some relief in terms of market volatility. A measure of expected euro-dollar fluctuations fell from over 14% on Monday to below 12% and a measure of volatility in US stocks fell to a week-long low of around 57 points.

(Graphic: volatility is here again on Wall Street png)

Reporting by Sujata Rao; Additional reporting from Karin Strohecker in London, Wayne Cole in Syndey and Scott Murdoch in Hong Kong; Edited by Alex Richardson

Our standards:The Thomson Reuters Trust Principles.

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