Asia report: Markets bounce after fresh Fed stimulus

Markets in Asia bounced across the board on Tuesday, after the US Federal Reserve announced fresh stimulus measures overnight and other central banks made releases.

In Japan, the Nikkei 225 was ahead 4.88% at 22,582.21, as the yen weakened 0.03% against the dollar to last trade at JPY 107.36.

Of the major components on the benchmark index, automation specialist Fanuc surged 6.74%, fashion firm Fast Retailing added 3.62%, and technology conglomerate SoftBank Group was 2.79% firmer.

The broader Topix index was 4.09% firmer by the end of trading in Tokyo, closing at 1,593.45.

Investor expectations were sated by the Bank of Japan on Tuesday, as the central bank kept its primary policies on hold.

“Japan’s economy is likely to remain in a severe situation for the time being due to the impact of Covid-19 at home and abroad, although economic activity is expected to resume gradually,” the BoJ said.

“For the time being, the Bank will closely monitor the impact of Covid-19 and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels.”

On the mainland, the Shanghai Composite was 1.44% higher at 2,931.75, and the smaller, technology-heavy Shenzhen Composite advanced 1.77% to 1,898.35.

South Korea’s Kospi was 5.28% firmer at 2,138.05, while the Hang Seng Index in Hong Kong added 2.39% to 24,344.09.

Both of the blue-chip technology stocks were higher in Seoul, with Samsung Electronics up 4.41% and chipmaker SK Hynix adding 4.15%.

Investor attention was firmly on the United States overnight, after the Fed said it would broaden its approach to corporate bond purchases, and would buy more corporate bonds.

The Fed previously said it would buy bonds on the primary market, with Tuesday’s announcement indicating a move to the secondary market as well.

“What seemed like a significant turn lower for equities has turned into another bounce, with the Fed and BoJ actions overnight providing the catalyst for the revival in risk appetite,” said Chris Beauchamp, chief market analyst at IG.

“While the timing of the Fed’s moves will be viewed as somewhat suspect, given that it comes just as the VIX spikes and equities take a dive, the reality is that activist central banks are a feature, not a bug, and will remain the driving force for markets thanks to the boost to liquidity and confidence that these provide.”

Beauchamp said that when, as now, economic and corporate data was so dire, then it was up to central banks to step in to bridge the gap in economic activity.

“Equity rallies are a side effect, and not the chief object, of these central bank moves, but the mantra ‘do not fight the Fed’ is still as powerful as it ever was.”

Oil prices were higher at the end of the Asian day, with Brent crude last up 1.39% at $40.27 per barrel, and West Texas Intermediate 1.4% stronger at $37.64.

In Australia, the S&P/ASX 200 leapt 3.89% to 5,942.30, as investors pored through the freshly-released minutes of the Reserve Bank of Australia’s June meeting.

The central bank said it “recognised the substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia was helping the economy through this difficult period."

“It was likely that this fiscal and monetary support would be required for some time”, the RBA board added.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 managed gains of 0.83% to 10,953.85, led higher by the trans-Tasman banking plays.

Australia and New Zealand Banking Group was ahead 4.5% on the Wellington bourse, and Westpac Banking Corporation advanced 4%.

The down under dollars were a mixed picture against the greenback by the end of the day, with the Aussie last 0.24% at AUD 1.4418, while the Kiwi weakened 0.06% to NZD 1.5455.