US Fed’s bond-buying programme gives global stocks a boost

Asian shares and Wall Street futures rallied on Tuesday as the formal start of the United States Federal Reserve’s corporate bond-buying programme boosted global investor sentiment and calmed earlier worries about a second wave of coronavirus infections.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.2 percent, its biggest one-day gain since June 1. Australian stocks rose 3.0 percent, while shares in China rose 1.2 percent.

Japan’s Nikkei stock index and shares in South Korea posted their biggest daily gains in nearly two months.

US stock futures, the S&P 500 e-minis, were up 0.98 percent following a late rally on Wall Street on Monday. US Treasury yields rose as investors sold bonds.

The Stoxx Europe 600 index of leading European shares opened higher on advances in travel and construction companies.

Crude oil futures erased gains and fell amid persistent doubts over whether supply cuts would be enough to reduce an oil glut.

US crude fell 1.2 percent to $36.68 a barrel. Brent crude declined by 1.2 percent to $39.23 per barrel.

The Fed said it will start purchasing corporate bonds on Tuesday in the open market, one of several emergency facilities launched in the wake of the coronavirus pandemic.

The US central bank also announced eagerly-awaited details of its programme to lend funds directly to companies.

Global equities had fallen sharply from late last week due to worries about the US economy and confirmation of a new coronavirus cluster in Beijing.

However, the Fed’s corporate bond purchases and data showing new infections in Beijing are under control helped equities quickly reverse course and head higher.

“Equities were overbought and corrected lower, but the S&P 500 has bounced off support because of the Fed,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

“The markets will continue to go higher as long as economies continue to reopen, and as long as the number of coronavirus cases is not large enough to stop the reopening.”

Sentiment in Asia got a boost after health officials said there were 27 new coronavirus cases in Beijing, down from 36 new cases the previous day.

But other developments could once again cast a shadow over the rebound.

Beijing city officials have described the coronavirus outbreak centred on the Xinfadi market as “very grim”, according to the Global Times newspaper. The Times said nine of 11 districts in Beijing have reported confirmed cases, with the area of Fengtai, which is around the market, the worst affected.

And Shanghai says it will impose a 14-day quarantine on all people arriving in the city from medium to high-risk COVID-19 areas elsewhere in China.

‘Unstable job market’

Dutch bank ING said even though recent economic data – such as a smaller contraction in retail sales in May compared with April – suggest a recovery is under way, China could still experience a choppy ride in the months to come.

“We believe that the unstable job market and healthcare concerns are the main factors slowing down the recovery. This means that even during the long holiday month of May, people were still spending carefully,” Iris Pang, ING’s chief economist for Greater China, said in a research note sent to Al Jazeera.

The Australian dollar rose 0.31 percent to $0.6942. The Aussie is often traded as a liquid proxy for risk because of its close ties to China’s economy and global commodities.

The yen was little changed at 107.32 per dollar before a Bank of Japan meeting ending later on Tuesday.

No major policy moves are expected, but some investors will focus on any comments about the global debate on capping government bond yields.