Stocks, oil rebound on US Fed’s stimulus plan

But analysts say downward trend in share prices likely to continue as coronavirus batters global economy.

Asian financial markets led early gains on Tuesday after the US Federal Reserve announced more measures to fight the financial effects of the coronavirus [File: Aly Song/Reuters]
Asian financial markets led early gains on Tuesday after the US Federal Reserve announced more measures to fight the financial effects of the coronavirus [File: Aly Song/Reuters]

Kuala Lumpur, Malaysia – As central banks throw trillions of dollars at the global economy to help buffer it against the ravages of the spreading coronavirus, stock markets in Asia and Europe rebounded on Tuesday from steep recent falls.

But analysts said the upward momentum is not expected to last, with much more economic pain likely ahead.

The United States Federal Reserve delivered a second wave of extraordinary measures on Monday to support the US economy, pledging to buy an unlimited amount of bonds and setting up programmes to ensure credit flows to companies, as well as state and local governments as business activity ground to a halt.

The unorthodox actions taken so far by the Federal Reserve, commonly known as the Fed, offer a lifeline to companies and Americans affected by a health crisis that is quickly morphing into a global economic downturn.

More countries are going into self-isolation, while shops and other consumer-oriented businesses shut to curb the spread of the virus.

“It does appear that the gains across the Asia market had mostly been an attempt to retrace some of Monday’s steep losses in a fashion similar to past sessions,” Jingyi Pan, market strategist at IG, an online trading provider, told Al Jazeera.

“Certainly, the Fed’s latest round of support measures had also been a strong show of the commitment from the central bank that helped to curb further downsides for the market on Monday,” Pan said.

“However, taking a look at the bigger picture, we continue to see both the US and Asia indices in a downtrend with the broad sentiment yet to show concrete improvement without a stabilisation of the coronavirus situation on a global scale,” she said.

Temporary relief

The Fed’s measures provided some relief to jittery investors, sending most Asian stocks higher on Tuesday.

After losing more than a third of their value from their February highs, South Korea’s Kospi Index rallied 8.6 percent, while Japan’s Nikkei 225 was up 7.13 percent, leading gains in Asia.

Contributing to the Nikkei’s climb was technology investor SoftBank, whose shares leapt 19 percent, extending gains this week after the company’s surprise announcement on Monday that it will sell $41bn of assets to buy back shares and reduce debt.

China’s benchmark Shanghai Composite Index gained 2.3 percent, while Hong Kong’s Hang Seng Index rose 4.5 percent.

European share markets were also sharply higher, with German’s Xetra DAX index surging by 6 percent in early trade.

And US stock index futures jumped to their highest limit before a temporary halt kicked in ahead of the open of cash trading in New York. 

Oil prices rose, with Brent crude gaining 1.96 percent to $29.56 per barrel, extending gains from a near 17-year low reached last week, but below the day’s high in late Tuesday trading in Asia. US West Texas Intermediate was up 3.8 percent at $24.25 per barrel.

China said on Tuesday it plans to lift its unprecedented lockdown of the city of Wuhan, where the coronavirus first took hold, on April 8. It was an early sign that the local transmission of the disease is coming under control after two months of sealing the city and surrounding areas.

At least 14,750 people globally have died from the coronavirus, while more than 340,000 infections have been confirmed in at least 177 countries and territories.

‘Strengthen health systems – everywhere’

The International Monetary Fund (IMF) on Monday joined a rising number of economists predicting a global recession this year, typically defined as two consecutive quarters of economic contraction. The IMF projected a downturn that could be at least as bad as that during the 2008 global financial crisis, followed by a recovery in 2021.

“To get to [the recovery next year], it is paramount to prioritise containment and strengthen health systems – everywhere,” IMF Managing Director Kristalina Georgieva said in a statement after a conference call with finance ministers and central bank governors from the Group of Twenty (G20) top economies.

“The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.”

US investment bank Goldman Sachs is projecting global economic output will contract by about 1 percent in 2020, which would be worst than the year following the global financial crisis. The bank estimates China’s economy is likely to contract by 42 percent in the first three months of this year compared with the previous quarter, according to a March 22 note.

Analysts are now concerned about delays in the US Senate to a spending package worth more than $1 trillion that would help affected US companies and ordinary Americans.

Disagreements between Republicans, who control the Senate, and Democrats, have stalled the bill.

“The gains in Asian markets are tentative at best, with global equities likely to see more losses than gains over the near term. The downside bias is fuelled by investors who are still fearing the worst over COVID-19’s eventual toll on the global economy,” Han Tan, market analyst at FXTM, told Al Jazeera.

While the Fed’s pledge for unlimited bond purchases and other liquidity-boosting measures helped stabilise the markets, more needs to be done by policymakers, analysts said.

“It is still critical to see both monetary policy and fiscal stimulus come together to present a coordinated front against the coronavirus outbreak and the oil shock,” Freddy Lim, co-founder and chief investment officer of StashAway, a digital wealth management platform, told Al Jazeera.

Source : Al Jazeera

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