Markets Apr 30

Fed support, coronavirus cure hopes fuel rally

Positive news about the drug remdesivir in treating Covid-19 also buoyed sentiment

Fed support, coronavirus cure hopes fuel rallyb
Students eat their lunch at desks with plastic partitions to reduce the possible spread of the coronavirus at the Dajia Elementary School in Taipei on April 29, 2020. Photo: Sam Yeh/ AFP

(ATF) Asian markets received a boost from supportive comments from the US Federal Reserve overnight and optimism around an experimental Covid-19 treatment which gave investors hopes of a global economic recovery.

Wall Street stocks rallied overnight after the US Federal Reserve said it is “committed to using its full range of tools to support the US economy in this challenging time” and would “continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning” after it kept interest rates unchanged as expected.

BlackRock estimated that the Fed will purchase roughly equivalent to at least $1.5 trillion in Treasuries over the remainder of the year with the central bank’s balance sheet likely to grow by $7 trillion.

“The overarching theme of yesterday’s FOMC statement and press conference was that the Fed is committed to doing “whatever it takes,” and more, just to make sure as strong as possible a recovery can be reestablished,” Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, said.

“As such, it’s abundantly clear from the new FOMC statement and press conference that this represents Chair Powell’s “Mario Draghi Moment” where, like the former President of the ECB, he’s effectively committed to 'do whatever it takes' to aid the economy through this severe stress.”

The S&P 500 climbed 2.66%, the Nasdaq Composite jumped 3.57%, and the Dow Jones Industrial Average advanced 2.21%, with positive results from Microsoft Corp, Facebook Inc. and Tesla Inc. adding to the optimism.

Sentiment boosted

Sentiment was boosted after the US Department of Health and Human Services said preliminary data analysis from a randomized, controlled trial involving 1,063 patients, showed hospitalized patients with advanced Covid-19 and lung involvement who received remdesivir recovered faster than similar patients who received placebo.

“Recovery in this study was defined as being well enough for hospital discharge or returning to normal activity level,” it said in a statement.

This morning China published economic data which showed official PMI fell to 50.8 in April from 52.0 in March and Caixin PMI declined to 49.4 from 50.1. Both were below the consensus of 51 and 50 respectively.

“The latest survey data shows that renewed weakness in the manufacturing sector was offset by a pick-up in construction and services, leaving the overall pace of recovery broadly unchanged in April,” Capital Economics said in a note.

The Nikkei 225 has jumped 2.58%, while the Korean Kospi benchmark is up 0.7% and the CSI 300 has advanced 1.2%. The ASX 200 has climbed 1.59% as oil prices continue their recovery – WTI prices are up 5.4% and Brent edged up 6%. 

Regionally, the MSCI Asia Pacific benchmark has advanced 1.4% with the Hong Kong markets shut for a long holiday. 

Credit markets are positive with newly priced bonds trading higher. Shuifa Group priced a 3-year bond at 4.30% yield, 30 basis points inside the initial price guidance and Nan Hai Corporation priced a 2NC1 bond some 50 basis points tighter indicating the demand for yield among investors.