Market Close Jun 16

Fed, BoJ fire up markets

BOJ’s expanded programme boosts the Nikkei; Fed’s corporate bond buying lifts sentiment; Credit rally spurs a wave of new bond offerings

Fed, BoJ fire up markets
Helping hands: Bank of Japan Governor Haruhiko Kuroda, who announced further stimulus to the country’s flagging economy. 

(ATF) Investors stormed back into risk markets after central banks around the world reiterated their support to reeling economies with buybacks, loan programmes and other forms of assistance.

Bank of Japan Governor Haruhiko Kuroda said the Japanese central bank is unlikely to raise rates in the next two years and unlikely before the Fed. This came hours after the US Federal Reserve announced a corporate bond buying plan  and also disclosed details about its Main Street Lending programme

Bank of Japan also expanded its zero-interest loan programme to firms to 90 trillion yen ($837 billion) from 55 trillion yen, boosting its firepower to 110 trillion yen, inclusive of corporate bond purchases.

“The BoJ's policy easing is moving towards providing more support to corporate finance and financial markets, as monetary policy has little conventional room to ease further,” said HSBC economists James Lee and Ki-Hyuk Lee. 

Japan’s Nikkei 225 index soared 4.88%, Australia’s S&P ASX 200 surged 3.89% and Hong Kong’s Hang Seng benchmark jumped 2.39%. Mainland China’s CSI300 advanced 1.51% after the PBOC said the banking system has reasonable and sufficient liquidity at present. 

Investors are starting to feel less threatened by the impact of a second wave of infections although the jury is still out as to the speed of the economic recovery.

“A V-shaped recovery it is not, but the direction of travel is a positive one. A second wave of infections – at least during summer months for the Northern Hemisphere – should not be as troubling as the first,” said Seema Shah, Chief Strategist, Principal Global Investors. 

She said monetary and fiscal policies remained stimulative across the world and that the ample flow of liquidity means large sums of capital will inevitably flow toward capital markets, acting as a backstop for equities. But she added that economic realities would create sharp corrections in markets and remove the frothiness.

“We do not anticipate a new bear market and certainly a re-testing of the market lows seems unlikely, but a period of consolidation seems to be in the offing.”

Credit markets are also firmly risk on with the Asia IG index moving in by 7 basis points at 84/86 and sovereign CDS shrinking by 5-12 bps. The primary market pipeline remains busy with Ping An Real Estate, Chailease Holding, CNPC and PLDT among a horde of issuers out in the market tapping yield hungry investors.

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 soars 4.88%
  • Australia’s S&P ASX 200 surges 3.89% 
  • Hong Kong’s Hang Seng index climbs 2.39%
  • China’s CSI300 added 1.51%
  • The MSCI Asia Pacific index jumps 3.99%.

Stock of the day 

Power equipment maker China Metal Resources collapsed in a firm market, falling as much as 93% before ending down 82.7% on the day. The company’s board is meeting this Friday to approve the annual results of the Group for the year ended 31 December. Traded volume was 549 million shares, an all time high and amounted to over a fifth of the issued shares.