Asian shares ride Wall Street surge as investors pin hopes on U.S. stimulus

Asian shares gained on Wednesday in the wake of Wall Street’s massive rebound as U.S. senators and Trump administration officials reached an agreement on a giant economic stimulus bill to alleviate the economic impact of the coronavirus outbreak.

European benchmark stock futures STXEc1 rose more than 1% in early trade but U.S. stock futures EScv1 were down 1% as the news about the deal invited profit-taking after big gains the previous day.

“No doubt it’s a positive development that they’ve agreed… But once it is approved the question is how it is implemented,” said Jason Teh, chief investment officer at Vertium Asset Management in Sydney.

“It’s good the authorities are going to throw everything at it. But if the virus is not controlled in the U.S., then they’re going to have to throw another trillion dollars.”

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 3.4% while Japan’s Nikkei .N225 surged 6.9%.

“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.

MSCI’s gauge of stocks across the globe .MIWD00000PUS was up 1.0%, having rallied 8.39% on Tuesday, the largest single-day gain since the wild swings seen during the height of the global financial crisis in October 2008.

On Wall Street, the Dow Jones Industrial Average .DJI soared 11.37% on Tuesday, 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 due to the pandemic and sweeping lockdowns in many countries.

The U.S. S&P500 .SPX is still down almost 28% from its record peak hit just over a month ago.

“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.”

STIMULUS

The U.S. stimulus deal, billed as a $ 2 trillion package, is expected to include $ 500 billion in direct payments to people and $ 500 billion in liquidity assistance.

Investor fears about a sharp economic downturn also 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 three days.

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 a shortage of hospital beds.

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

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

The dollar stood flat at 111.16 yen JPY=, off a one-month high of 111.715 touched the previous day.

Gold changed hands at $ 1,610.0 per ounce XAU= retaining its gains of almost 5% on Tuesday, its biggest jump since 2008.

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 CLc1 rose 4% to $ 24.96 per barrel. That is up about $ 5.5, or about 26%, from their 18-year intraday low of $ 19.46 touched on Friday. Still on the month, the market is down 44%.