Market Close Jul 30

Economic worries return after Fed stoked high

US stimulus bill hits turbulences; Gold, EM debt gains seen on weak dollar; BofA sees gold at $3,000  

Economic worries return after Fed stoked high
A man with a cello walks past graves of people killed by Covid-19 in part of the Municipal Pantheon of Valle de Chalco in Mexico on July 28, 2020. Photo: Alfredo Estrella / AFP.

(ATF) Hong Kong: Investors have turned cautious as the Federal Reserve-triggered rally lost steam amid worries about the economic and corporate impact of the still spreading pandemic.

“As more bleak economic data emerges, we think markets are nearing their limits without further stimulus and a much stronger recovery. They cannot defy economic gravity indefinitely,” Andrew McCaffery, Global CIO of Asset Management at Fidelity International, said.

The global infection count has crossed 17 million with over 667,000 dead across the world amid secondary outbreaks, and failure to get the first outbreak in some countries under control. This has forced more local lockdowns and greater economic hardship.

“Evidence of the real, underlying economic damage is emerging, especially in labour markets. For these reasons, we believe that the third quarter is likely to be much more challenging than the second quarter recovery would imply, and markets could see renewed volatility.”

Japan’s Nikkei 225 index fell 0.26%, Hong Kong’s Hang Seng index slipped 0.69%, and China’s CSI300 benchmark dropped 0.49%. But Australia’s S&P ASX 200 was the regional outperformer adding 0.74%.

Credit markets were steady off morning highs with the Asia IG index flat at 74/75 bps. Redco Properties is in the market with a bond offering following its upgrade by Fitch Ratings. The pipeline is expected to remain busy in the backdrop of a weak dollar.

US stimulus package

Markets are also awaiting the outcome of the US stimulus package proposed in the Senate amid talk that many Republicans are opposed to it.

“Concerns around rising virus cases and their impact on the labour market and activity will be further compounded if Congress cannot agree on a new fiscal stimulus package before summer recess. With special unemployment benefits set to expire at the end of this week, the recovery is at stake,” said Seema Shah, Chief Strategist, Principal Global Investors.

Gold was off highs but continues to trade at above $1,952 per ounce with investors worried about limitations of stimulus efforts globally.

“Policy-makers may have to maintain a breakneck pace of fiscal and monetary policy stimulus as far as the eye can see, boosting the case for our $3,000/oz 18 month gold target,” BofA Securities analysts said in a note.

The dollar remains under pressure with the greenback trading at 93.67 against a basket of currencies, although it is off its lows.

“The Fed’s commitment to keeping yields low has already depressed the US dollar, but this is good news for emerging markets and Asian assets, both in fixed income and equities,” Tai Hui, global market strategist at JPMorgan Asset Management, said.

“Hence, we believe investors should take a closer look at Asian equities, especially sectors with a strong structural growth theme in China, Asean and South Asia. This should offer additional diversification opportunities to a balanced equity/bond portfolio.”

Flying start

Earlier in the day, markets had a flying start after the Federal Reserve’s statement assured its support for the world’s largest economy while keeping rates unchanged at near zero. As expected, this has put more pressure on the US dollar and increased the attractiveness of hard currency, EM debt and gold.

Overnight, the US Federal Reserve said it will use all its tools and act as appropriate to support the economy at the end of its two-day rate setting meeting, after keeping interest rates unchanged, as expected.

The Federal Reserve also extended its dollar liquidity swap lines with the central banks of Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand. In addition, the Fed also has standing US dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

Also on Asia Times Financial

HSBC hammered over Huawei legal fight in Canada 

Ministry demands acceleration of special bonds issuance 

Enterprise bonds lifts benchmark on exports optimism

Foreign Exchange: HK-US dollar peg assailable only at large cost to greenback

Asia Stocks

# Japan’s Nikkei 225 eased 0.26%

# Australia’s S&P ASX 200 added 0.74% 

# Hong Kong’s Hang Seng index slipped 0.69%

# China’s CSI300 retreated 0.49%

# The MSCI Asia Pacific index fell 0.43%.

Stock of the day 

Precison Tsugami Corp Ltd, which produces high precision machine tools, rose as much as 8% after it said profits would jump by 50%.