Tuesday 24 March 2020 7:33 am

Global stocks set to rise sharply on Fed's bond-buying pledge

Global stocks rose overnight despite fears US President Donald Trump’s administration’s economic stimulus package faces further delays.

Asian stocks surged in Tuesday trading that saw Japan’s Nikkei leap seven per cent higher and Hong Kong’s Hang Seng index jump 4.6 per cent.

Read more: US Federal Reserve announces unlimited bond-buying to tackle coronavirus slowdown

That came despite the Senate again blocking Trump’s near $2 trillion (£1.7 trillion) stimulus package to support the US economy yesterday.

But Asian stocks received a boost from the US Federal Reserve’s vow to buy bonds by an unlimited amount to prop up markets.

That led traders to bet the FTSE 100 will open four per cent higher, a full recovery from yesterday’s losses of 3.8 per cent.

That dragged the London index down to below 5,000 points as European stocks also sank.

Read more: FTSE 100 slumps despite massive Fed intervention

“How long this optimism would last is yet to be seen,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“Markets are going down the rabbit hole and the financial dimension of the coronavirus crisis has gotten to a level where we might see a worldwide economic recession that is worse than the one we experienced following the 2007-2008 breakdown.”

The Fed’s huge bond-buying pledge failed to impress Wall Street. US stocks on the Dow fell an average of three per cent, while the S&P 500 also shed 2.9 per cent of its value. The Nasdaq ended the day flat.

“The distinct lack of progress on the fiscal side saw US equity markets fall to their lowest levels of the coronavirus crisis yet,” Deutsche Bank analyst Jim Reid said of Congress’ political deadlock on Trump’s stimulus package.

“The consensus opinion still remains that a deal will be struck this week, likely in the next couple of days, but the timeline continues to get longer which will be a negative for risk assets, no matter the monetary policy.”

Meanwhile today heralds the arrival of economic data that could show the early effects of a slowdown from the coronavirus outbreak.

“While they are unlikely to reflect the full force of the various economic shutdowns around the world to date, the likelihood is that they will show some extremely sharp slowdowns,” Reid added.

Read more: London retail footfall plunges as shops close amid coronavirus pandemic

The Eurozone’s manufacturing and services sectors are expected to post their sharpest falls on record for March as Italy, Spain and other countries locked cities into quarantine over coronavirus.

And Ozkardeskaya said the UK’s services sector is expected to contract significantly in March.

Read more: Contactless spending limit increased in response to coronavirus

“But we already know that this number is subject to a significant downside correction from next month as the UK finally announced a complete three-week lockdown to stop the virus from spreading,” she added.

Last night Prime Minister Boris Johnson ordered UK citizens to stay at home for three weeks. He also closed all shops save supermarkts and pharmacies in a bid to contain the coronavirus outbreak.

Share


Tags: