Asia equities rally as US agrees blockbuster stimulus package
Move of massive spending splurge sends Wall Street into overdrive
Asian equities soared again on Wednesday after US lawmakers finally agreed on a mammoth stimulus package to support the world’s biggest economy against the impact of the coronavirus pandemic.
While the deadly disease continues to spread, traders have a rare semblance of optimism after weeks of carnage across global markets, with eyes fixed on Washington where lawmakers in the early hours thrashed out an emergency bill worth as much as $2 trillion – around 10% of US gross domestic product.
The measure will put cash directly into the hands of Americans, provide grants to small businesses and hundreds of billions of dollars in loans for corporations including embattled airlines, while expanding unemployment benefits.
The prospect of a massive spending splurge, combined with the Federal Reserve’s pledge to essentially print as much cash is needed, sent Wall Street into overdrive on Tuesday, with the Dow seeing its biggest rise since 1933, while the S&P 500 enjoyed its best day in more than a decade.
And the gains spread into Asia, which rallied for a second straight day, with extra impetus later in the day coming from the news out of Washington.
Tokyo ended 8% higher, with investors there also relieved that the 2020 Olympics had been postponed rather than cancelled.
Hong Kong rose 3.8%, Shanghai was up more than 2%, while Singapore, Sydney and Manila rallied more than 5% and Seoul piled on more than 4%.
Taipei added almost 4%, while Mumbai, Bangkok and Wellington were also well up.
In early trade, London rose 1.7%, Paris jumped 2.7% and Frankfurt climbed 2.5%.
Adding to the more upbeat mood was the G7’s promise to do “whatever is necessary”.
The unprecedented moves are part of a worldwide response to the rapid financial shock caused by the COVID-19 outbreak, which has locked down countries including the US and brought the global economy to a juddering halt.
“The Senate’s approval of the $2 trillion package should provide a positive lift to investors’ mood in the near term, complementing the US Federal Reserve’s aggressive action in the past four weeks,” said Tai Hui at JP Morgan Asset Management.
Hopes for the US deal and the Fed’s promise to ramp up its bond-buying also sent the dollar lower, a relief to investors as demand for the unit had seen it soar against peers, including a 35-year high against the pound.
“In ‘buy the rumour, sell the news’ fashion, the stock market could easily take another sharp leg lower once the good news is out, and investors conclude that it won’t be enough (yet) to address what’s going on in the real economy,” said AxiCorp’s Stephen Innes.
“Given the rapid succession of downgrades, we should likely expect more pain over the short term, as the situation in New York and California continues to deteriorate. And with the entire population of India going into a government-enforced 21-day nationwide curfew, it doesn’t suggest blue sky.”