Asian stock markets yesterday gained after the US Federal Reserve promised support to the struggling US economy as the US Congress delayed action on a US$2 trillion coronavirus aid package.
Market benchmarks in Tokyo soared more than 7 percent and South Korea rose nearly 6 percent, while Shanghai, Hong Kong and Australian markets also gained.
Traders were encouraged by the Fed’s promise to buy as many Treasury bonds and other assets as needed to keep financial markets functioning.
That came as Wall Street fell 3 percent after Congress failed to approve an economic support package that would send checks to US households and offer support for small businesses and the hard-hit travel industry, but US Democrats have said that 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,” AxiCorp Financial Services Pty Asia Pacific market chief strategist Stephen Innes said in a report.
The Nikkei 225 in Tokyo rose 7.13 percent — the biggest jump since February 2016 — or 1,204.57 points to close at 18,092.35, while Seoul’s KOSPI Composite Index gained 8.6 percent to 1,609.97 after the government doubled a planned economic rescue package to 100 trillion won (US$80.41 billion). The Shanghai Composite Index rose 2.34 percent to 2,722.44.
The Hang Seng Index in Hong Kong was 4.36 percent higher at 22,642.70, while Australia’s S&P/ASX 200 gained 4.17 percent to 4,735.70. Markets in New Zealand and Singapore also advanced.
The Fed’s promise goes beyond the US$700 billion in asset purchases announced last week.
The central bank said it would buy a wide range of investments, including corporate bonds for the first time, to improve trading in markets that help home buyers finance mortgages, state and local governments borrow, and businesses get enough short-term cash to make payrolls.
“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,” ING Groep NV economist James Knightley said 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.
On 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 COVID-19. The number of floor traders had dwindled sharply in recent years as trading has become increasingly 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 are increasingly saying that a recession seems inevitable. Analysts are slashing their forecasts for upcoming corporate profits. Forecasters have said that they cannot project how deep the downturn might be or how long it might last.
Professional traders have said that investors need to see a decline in the number of new infections before markets can find a bottom.
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