GLOBAL MARKETS-Asia rides Wall St surge as investors place hopes on U.S. stimulus

* MSCI ACWI builds on biggest gains since 2008 financial crisis

* Gold retain gains after big jump

* Dollar slides as funding squeeze eases a little

* Asian stock markets: tmsnrt.rs/2zpUAr4

By Hideyuki Sano

TOKYO, March 25 (Reuters) – Asian shares extended their rally on Wednesday in the wake of Wall Street’s massive rebound as the U.S. Congress appeared closer to passing a $2 trillion stimulus package to mitigate the economic blow from the coronavirus pandemic.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.7% with Australian shares jumping 3.4% and South Korean shares gaining 3.5%. Japan’s Nikkei surged 4.8%.

“Japanese shares have been bolstered by aggressive buying from the Bank of Japan and pension money this week. That has prompted hedge funds to cover their short positions,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

On Tuesday, MSCI’s gauge of stocks across the globe rallied 8.39%, the largest single-day gain since the wild swings seen during the height of the global financial crisis in October 2008. It rose another 0.8% in Asia on Wednesday.

On Wall Street, the Dow Jones Industrial Average soared 11.37%, its biggest one-day percentage gain since 1933.

Yet, much of the large gains in stock markets pale in comparison with the brutal selloff of the past few weeks as investors braced for a deep global recession in the wake of sweeping lockdowns in many countries.

U.S. S&P500 is still down almost 28% from its record peak hit just over a month ago. Wall Street futures were down 1.1% in early Asian trade.

“Many analysts have recently put out dire economic forecasts, like annualised rate of 20% fall in U.S. GDP next quarter. Europe and Japan should also see double-digit contractions,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

“I suspect the outlooks have sunk in among market players already and that the bear market has run about 80% of its course for now.”

Senior Democrats and Republicans in the divided U.S. Congress said on Tuesday they were close to a deal on a $2 trillion stimulus package to limit the economic damage from coronavirus pandemic. But it was unclear when they would be ready to vote on a bill.

Investor fears about a sharp economic downturn appear to be easing somewhat after the U.S. Federal Reserve’s offer of unlimited bond-buying and programmes to buy corporate debt.

“Companies will see their revenues sink and indebted firms will have trouble securing cash, so governments are making the right responses,” said Akira Takei, senior fund manager at Asset Management One.

“The question is, while those responses are necessary in the near term, what if this continues? You can’t keep helping companies that continue to make losses. The longer this drags on, the more likely we will need to adjust to a new normal.”

The biggest uncertainty is on how countries can slow the pandemic and how quickly they can lift various curbs on economic activity.

U.S. President Donald Trump pressed his case for a re-opening of the U.S. economy by mid-April.

But that met immediate scepticism given the rise of infections in the United States is now among the highest in the world, with the total cases reaching more than 50,000, doubling in less than 3 days recently.

In particular, its financial hub of New York City suffered another quick and brutal rise in the number of infections to around 15,000, raising worries about shortage of hospital beds.

In the currency market, the dollar has slipped as a greenback liquidity crunch loosened slightly.

The euro traded at $1.0808 up 0.15% after four straight days of gains.

The dollar dropped 0.3% against the yen to 110.85 , off a one-month high of 111.715 touched the previous day.

Gold ticked up 0.3% to $1,614.5 per ounce after having soared almost 5%, its biggest gains since 2008, on Tuesday. It was in part helped by concerns lockdowns in major producer South Africa could disrupt supply.

Oil prices bounced back as hopes for U.S. stimulus offset fears of falling global demand.

India, the world’s third largest oil consumer, ordered its 1.3 billion residents to stay home for three weeks, the latest big fuel user to announce restrictions on social movement, which have destroyed demand for gasoline and jet fuel worldwide.

The market remained pressured by a flood of supply after Saudi Arabia started a price war earlier this month, a move that dealt a crushing blow to markets already reeling from the pandemic.

U.S crude futures rose 4.5% to $25.10 per barrel. That is up about $5.5, or almost 26%, from their 18-year intraday low of $19.46 touched on Friday. Still on the month, the market is down 44%. (Editing by Sam Holmes & Shri Navaratnam)

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Bank of Japan sees deeper economic pain, even after emergency easing

TOKYO (REUTERS) – The coronavirus pandemic could plunge Japan into deep economic stagnation, the country’s central bankers warned at last week’s emergency monetary policy meeting with one seeing room for more stimulus, a summary of their discussion showed on Wednesday (March 25).

The Bank of Japan expanded monetary stimulus in an unscheduled policy meeting on March 16 to ease corporate funding strains and calm financial markets jolted by the health crisis.

A summary of opinions expressed at last week’s rate review showed the deep concern shared among the nine-member board over the huge blow the coronavirus outbreak could inflict on an economy, already reeling from last year’s sales tax hike.

“Japan’s economy may continue to stagnate even after overseas economies recover, as the impact of the virus could be enormous,” one board member was quoted as saying.

“I’m doubtful of the view Japan’s economy will stage a strong rebound once the virus is contained,” another opinion in the summary showed.

One board member said the BOJ can continue to respond flexibly to risks, through measures such as another emergency policy meeting or ramping up government bond purchases, as recession fears heighten, the summary showed.

The summary, typically released about a week after the BOJ’s policy meeting, does not disclose the identity of the board member who made the comments.

The pandemic has become a global economic crisis with travel restrictions, event cancellations and supply chain disruptions raising the chance Japan will slip into recession, keeping policymakers under pressure to deploy huge fiscal and monetary stimulus.

Confirmed coronavirus cases around the world exceeded 377,000 across 194 countries and territories as of early Tuesday, according to a Reuters tally, more than 16,500 of them fatal.

With the March monetary easing intended as a stop-gap move to address immediate strains in markets, the BOJ will focus more on how to address the economic fallout from the virus when it next meets for a rate review on April 27-28.

A senior ruling party lawmaker on Wednesday called on the government to compile a record stimulus that would be bigger than the 57-trillion-yen (S$745 billion) package deployed during the global financial crisis.

The BOJ also stands ready to expand stimulus again in April if the pandemic leads to cuts in jobs and capital expenditure big enough to derail prospects of an economic recovery, sources have told Reuters.

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UPDATE 1-Fed's 'bazooka' soothes dollar funding squeeze

* Small pockets of dollar funding shortage persist

* Other funding gauges stabilize (Adds quotes, details on credit markets)

By Tommy Wilkes, Kate Duguid and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK March 24 (Reuters) – The U.S. Federal Reserve’s efforts to shield the economy from coronavirus effects have, for now, slowed a scramble for dollars that threatened to clog funding markets, bringing back some calm on Tuesday.

The dollar had gained almost 9% in 11 days in the rush for cash, but fell on Tuesday, at one point to its weakest since March 19. Measures of dollar demand signaled that many businesses and banks felt they had enough for now.

The Fed announced on Monday it would buy bonds in unlimited numbers and backstop direct loans to companies, the latest in a series of policy steps taken over the past 10 days to calm markets and support the economy.

It actions have included 150 basis points of interest rate cuts, targeted schemes for short-term money markets and extended dollar swap lines. Those actions marked intervention by the central bank beyond financial markets, where it has so far concentrated its firepower, into the real economy.

Kit Juckes, a strategist at Societe Generale, said that taken together, the Fed announcements were “incredible.”

Demand for dollars appears to be “largely sated in the sterling and euro markets, though not yet in yen,” he said.

The three-month euro-dollar swap spread, a measure of the premium European borrowers are willing to pay for access to dollars, fell to 8 basis points from 14.5 bps on Monday, before the Fed’s announcement.

The spread had risen as high as 86 bps last week, but measures including unprecedented joint action to ensure a plentiful supply of dollars for central banks has eased the rush for the U.S. currency.

Swap spreads in other currencies, such as sterling , tightened, although the dollar-yen spread remained relatively wide, with Japanese investors still prepared to pay a sizeable premium for access to dollars.

W. Brad Bechtel, global head of forex at Jefferies in New York, said the financial system still has segments with high dollar demand but not enough supply.

“The Fed has done a ton and there is almost an unlimited amount of U.S. dollars available so hopefully this is just a plumbing thing, and we are going to see that basis narrow once we get through quarter end,” Bechtel said.

One major indicator of stress in the U.S. banking system, the FRA-OIS spread USDF-O0X12=R, which measures the risks banks attach to lending to each other, has compressed to about 40 basis points, below last week’s levels of more than 50 basis points.

Investment grade credit also benefited from the Fed’s intervention on Monday, with large exchange-traded funds tracking that market’s rebound.

The spread of U.S. investment grade credit over safer Treasuries rose on Monday to its highest since May 2009, according to the ICE/BoFA index for that market.

The average yield on the index, however, fell modestly from a decade-high hit on Friday, and Monday’s increase in spreads was primarily due to a fall in Treasury yields.

The dollar, measured against a basket of currencies, fell 0.5%. The euro gained 0.8% to $1.0812, up from three-year lows of $1.0636 at the start of the week.

Emerging market currencies that have hit record lows versus the dollar also rebounded. (Reporting by Tommy Reggiori Wilkes; Additional reporting by Kate Duguid and Gertrude Chavez-Dreyfuss in New York; Editing by Richard Chang)

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