Boundless Fed QE fuels 2% equity bounce, calms dollar
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[March 24, 2020]
By Sujata Rao
LONDON (Reuters) - Global equities
rebounded almost 2% on Tuesday, off near four-year lows, and the dollar
slipped as investors pinned hopes on unprecedented stimulus steps by the
U.S Federal Reserve and other policymakers to ease strains in financial
While the measures such as the Fed's offer of unlimited bond-buying
won't immediately mitigate the economic devastation inflicted by the
coronavirus outbreak, they will launch more dollars into world markets,
allowing companies, funds and banks to access cash to pay creditors,
supplier and end-investors.
The prospect had not cheered Wall Street for very long on Monday, with
losses of 2-3% on major indexes, but the mood improved on Tuesday,
possibly as many other central banks and governments looked set to join
the fray. Wall Street futures pointed to stocks opening 4% higher, while
a pan-European equity index also rallied a similar amount.
"Today there is a strong recovery connected to the move that the Fed has
introduced this massive weapon," said Francois Savary, CIO of wealth
manager Prime Partners, noting the Fed had needed to resolve funding
markets seize-ups as a priority.
"The key issue at the end of the day is that we need to deal with a
credit markets that is completely closed. First they needed to stop this
increase in bond yields... second, they needed to make sure that there
is a return of liquidity in the credit then it will be equities - in
The Fed will not only buy unlimited amounts of assets but also expand
its mandate to corporate and municipal bonds and backstop a series of
other measures that analysts estimate will deliver $4 trillion-plus in
loans to non-financial firms.
There were also signs of progress in Congress on a $2 trillion U.S.
stimulus deal, which Treasury Secretary Steven Mnuchin hoped was "very
Other countries are unveiling their own measures - South Korea's ravaged
market climbed 8.6% after the government doubled a planned economic
rescue package to 100 trillion won ($80 billion).
In China, mainland stocks posted their biggest gain in three weeks with
a rise of almost 3% while Japan's Nikkei soared 7%, its biggest daily
rise since Feb 2016.
Not everyone was optimistic the buoyant mood would last noting, for
instance, that global coronavirus infections now top 350,000 with scores
of countries in lockdown. China too posted a rise in new infections
brought in from abroad.
[to top of second column]
Pedestrians wearing face masks walk near an overpass with an
electronic board showing stock information, following an outbreak of
the coronavirus disease (COVID-19), at Lujiazui financial district
in Shanghai, China March 17, 2020. REUTERS/Aly Song
"Markets are continuing to bounce up on the latest policy
announcements and then sliding back down as the economic reality of
the situation re-emerges," Deutsche Bank strategist Jim Reid said.
Still, the plan calmed nerves in bond markets, where yields on
two-year Treasuries hit their lowest since 2013. Ten-year yields
were at 0.8339%, from last week's peak of 1.28%. Yields inched
higher on Tuesday as equities rallied.
ALL ABOUT THE ECONOMY
Just how much the virus is ravaging the global economy is evident in
a series of growth forecast downgrades and advance readings of
purchasing managers indexes (PMI) across the world's biggest
German activity plunged to the lowest since the 2009 crisis, driven
by a record services contraction, while French activity hit all-time
lows. Japan posted its biggest-ever services decline.
"Economies around the world are going offline and that is
devastating for economic activity, it's creating the most robust
dislocation in financial markets in living memory," said George
Boubouras, head of research at K2 Asset Management in Melbourne.
For now however, the prospect of massive Fed funding pushed the
greenback 0.5% lower against rivals, off three-year peaks. It fell
similarly to the yen and slumped 1% versus the euro.
Commodity and emerging market currencies also benefited, with the
Australian dollar up almost 2% to $0.59315 and well off 17-year
There was some relief on the market volatility front too. A gauge of
expected euro-dollar swings eased below 12%, from above 14% on
Monday, and a measure of U.S. equity volatility slipped to one-week
lows around 57 points.
(Reporting by Sujata Rao; Additional reporting by Karin Strohecker
in London, Wayne Cole in Syndey and Scott Murdoch in Hong Kong;
Editing by Alex Richardson)
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