Global stocks rally on Fed’s corporate bond-buying plan

Global stocks rallied on Tuesday after the Federal Reserve said it would begin buying US companies’ debt in a move that helped to ease investor concerns over coronavirus outbreaks in China and the US.

In Asia-Pacific trading, Japan’s Topix index rose 3.4 per cent and Australia’s S&P/ASX 200 gained 3.8 per cent. Hong Kong’s Hang Seng climbed 3 per cent while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks was 0.9 per cent higher.

In South Korea, equities trading was briefly suspended after Kospi 200 futures rose more than 5 per cent from the previous day’s close, triggering a short cool-down period. The Kospi index was up 4.2 per cent in afternoon trading in Seoul.

Tokyo-listed stocks also got a boost after the Bank of Japan said it expected to pump ¥110tn ($1.02tn) into the economy through various support programmes, up from a previous estimate of ¥75tn.

“Yesterday’s pain is today’s gain,” said Andy Maynard, a Hong Kong-based trader at China Renaissance, referring to the falls in Asian markets the previous day. But he added that “there is a sense … that in the medium-term there is a potential correction coming — albeit probably not as large as we’ve already seen”.

Overnight on Wall Street, US stocks reversed steep losses early in the session after the central bank said it would start buying the debt of US companies as part of efforts to support the economic recovery. The S&P 500 closed 0.8 per cent higher and the tech-heavy Nasdaq rose 1.4 per cent.

The Fed’s move to buy “a broad, diversified market index” of corporate debt helped shift attention from concerns that rising Covid-19 cases in parts of the US and China would thwart efforts to kick-start the world’s largest economies. The central bank plan, first announced three months ago, could help reduce borrowing costs for American businesses.

Fed chair Jerome Powell is due to deliver the central bank’s semi-annual monetary policy report to Congress on Tuesday.

Futures markets tipped US stocks to rise further when trading begins on Wall Street with the S&P 500 expected to gain 1.4 per cent. The FTSE 100 was set to rise 2.5 per cent.

On Tuesday, Chinese health authorities reported 27 new coronavirus cases in Beijing as of the end of Monday, accounting for the bulk of 40 new infections in the country. Officials in the Chinese capital are working to contain an outbreak linked to a wholesale food market after half of the city’s districts reported coronavirus cases in recent days.

Investors are concerned that the flurry of new cases in China could result in new lockdowns, hitting the country’s economic recovery from the pandemic.

“Even though we don’t expect the renewed outbreak in Beijing to lead to another Wuhan-style lockdown, the risk is clearly that an erratic path for the virus will interrupt the growth recovery for the remainder of the year,” said Aidan Yao, senior emerging Asia economist at AXA Investment Managers.

The yield on US 10-year Treasuries, viewed by investors as a haven during times of uncertainty, rose 0.03 percentage points to 0.753 per cent. Bond yields rise as prices fall.

Oil prices also slipped on Tuesday after rallying the previous day. Brent crude, the international benchmark, was down 0.5 per cent to $39.51 a barrel. US marker West Texas Intermediate slipped 0.7 per cent to $36.85 a barrel.

Additional reporting by Edward White in Wellington