Asian stocks were boosted yesterday by the promise of ultra-easy monetary policy globally as the US Federal Reserve pledged to support the country’s virus-battered economy, though record-shattering Covid-19 cases tempered gains.
Tokyo’s Nikkei 225 closed 0.3% down at 22,339.23 points, Hong Kong’s Hang Seng closed 0.2% down at 24,829.02 points and Shanghai Composite closed 0.2% down at 3,286.82 points.
Elsewhere, Singapore shares were down 2.25%, South Korea’s KOSPI added 0.2% while Australia’s main index climbed 0.7%.
A US stalemate over the next fiscal stimulus package together with a surge in novel coronavirus cases in the world’s largest economy had investors on the backfoot.
Cases have also spiked this week in Asia with Australia, India, Vietnam, and North Korea all on high alert. “There is no doubt that the Fed’s large presence in markets has provided risk assets with a backstop to stop a tightening in financial conditions,” said Perpetual analyst Matthew Sherwood.
On Wednesday, all Fed members voted as expected to leave the target range for short-term rates between 0% and 0.25%, where it has been since March 15 when the virus was beginning to hit the nation.
The unchanged policy setting together with a pledge the Fed would use its “full range of tools” if needed boosted risk appetite overnight with all three Wall Street indexes finishing firmer.
“But they (Fed) don’t have any tools to engineer a recovery, which means that fiscal policy will need to remain in place to support household incomes, especially as unemployment could increase in the months ahead as the true impact of the shock on the labour market is revealed,” Sherwood added.
Indeed, negotiations for a new coronavirus relief package in the United States have become a pressing issue for investors.
US President Donald Trump said on Wednesday that his administration and Democrats in Congress were still “far apart” on a new coronavirus relief bill.
In currencies, the dollar index regained some lost ground after crashing to 93.17, the weakest since June 2018.
The dollar has been tumbling on expectations the Fed will continue its ultra loose monetary policy for years to come and on speculation it will allow inflation to run higher than it has previously indicated before raising interest rates.
The greenback weakness has supported the euro, which is on course to post its biggest monthly gain in 10 years, having risen about 5% so far this month.
It was last down 0.3% at $1.1754. The risk-sensitive Australian dollar slipped 0.5% to $0.7148 after hitting its highest levels since April 2019.
In commodity markets, oil prices were weighed down by concerns that surging coronavirus infections around the globe could jeopardise a recovery in fuel demand.
Brent crude futures were down 7 cents at $43.68 a barrel.
US crude futures eased 7 cents to $41.20.
The Federal Reserve yesterday pledged to provide as much support as necessary for the US economy, with early gains reversed by fears a fresh wave of virus infections could push the global recovery off track.
While the central bank did not unveil any new measures and broadly met expectations, analysts said it instilled some much-needed confidence that the Fed had their back.
Bank boss Jerome Powell said the Fed had noted the spike in new US cases was denting economic activity and warned the downturn was “the most severe of our lifetimes”, while adding recovery depended on staunching the virus so Americans could go out and spend again.
The policy board repeated its intention to hold rates near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals”. Observers said focus now turns to the next policy meeting in September, which could see more measures unveiled.
That was enough to give a boost to equities, which have struggled in recent weeks on concerns about the spread of coronavirus around the world and containment measures that have been re-introduced in some countries.
Wall Street’s three main indexes saw healthy gains which were followed by Asia in the morning, but the advance fizzled as the day wore on.
“It wasn’t exactly the most riveting (policy meeting) of recent times after the Fed let the cat out of the bag late Tuesday pledging to extend its emergency programmes,” said Stephen Innes at AxiCorp.
But the meeting “still managed to dot I’s and cross the T’s and out-dove even the market’s most dovish expectations”, he added.
“Investors liked what they heard from Chair Powell.
This is a Fed that appears to feel the pulse of the economy, even despite the meeting coming in line with expectations and offering no new policy announcements.”
But, while traders have a mountain of cash from governments and central banks around the world backing them up, the disease continues to dominate as the US death toll topped 150,000 and Australia’s state of Victoria noted a record number of new infections.
The grim readings highlight the overriding need for a vaccine.
There is also worry Powell’s calls for more government aid to help the economy might not be heeded by US lawmakers, who remain poles apart as they try to hammer out a new stimulus.
Republicans are divided over their own $1tn proposal, while Democrats — whose plan is three times bigger — have resisted moves for a piecemeal package suggested by President Donald Trump.
White House Chief of Staff Mark Meadows said the two sides were “nowhere close to a deal”. The prospect of US interest rates being kept at zero for an extended amount of time put further pressure on the dollar.
It hit a two-year low against the euro, but managed to claw back slightly in Asian business.
Analysts, however, say it could face further selling later in the day if US economic growth comes in worse than the 35% contraction forecast for the second quarter.
from Gulf Times https://ift.tt/30XpBPG
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