Market Close Feb 02

Markets buoyant as US stimulus package debate looms

Equities surge a second day; Biden, Congress indicate deal still on the table; Reddit siege of markets ‘runs out of road’

by Mark McCord and Danny McCord
Markets buoyant as US stimulus package debate looms
Photo: Reuters

ATF: Asian equity markets rose again Tuesday, extending the previous day's rally as investors got back in the saddle following last week's global rout, with sentiment buoyed by US stimulus hopes.

Concern about the social media-led retail investor battle with Wall Street hedge funds also appeared to be easing, with analysts saying the threat to broader markets would likely be limited.

However, while the mood was a lot lighter than last week, the ever-present shadow of the coronavirus, along with stuttering vaccine rollouts, continues to keep gains in check.

MSCI's gauge of Asia Pacific stocks outside Japan rose 1.5%, with China's benchmark CSI300 Index climbing 1.5%, helped by easing concerns about tight liquidity and falling cases of new coronavirus infections. Japan's Nikkei 225 added 1%.

Joe Biden on Monday held a meeting with a group of Republican lawmakers to discuss their stimulus counter-proposal as the new president looks to push through a bipartisan deal.

Smaller deal

The $600 billion plan backed by Republicans is less than a third of the one put forward by the White House, and includes smaller handouts and no provision for state and local governments – two issues that Democrats are likely to reject.

The talks ended with no agreement but Republican Senator Susan Collins described them as "frank and very useful".

White House Press Secretary Jen Psaki added that "while there were areas of agreement" between the two sides, Biden "also reiterated his view that Congress must respond boldly and urgently, and noted many areas which the Republican senators' proposal does not address".

Hong Kong, Sydney and Seoul jumped more than 1%, while Mumbai and Taipei put on more than two percent. Tokyo gained one percent, while there were also healthy advances in Shanghai, Singapore, Manila and Bangkok. Jakarta and Wellington both dropped.

London, Frankfurt and Paris also extended their Monday gains at the open.

Traders remain concerned that prices are still too elevated after a months-long rally, while immunisation drives and spiking cases of new coronavirus variants were also a worry.

Upbeat outlook

"The excitement of vaccine development has been replaced by the reality of production, distribution logistics and questions on effectiveness," said Tai Hui, at JP Morgan Asset Management.

"The US and the UK are making steady progress in inoculating their populations. However, there is some confusion surrounding the availability of vaccines and distribution in Europe, which is worrying investors and dimming the prospects of quick economic recovery."

But he added: "We're still positive on equities while acknowledging the near-term risk of more volatility. Despite the bumps in distribution, early data from Israel has shown that those who are vaccinated have a reduced rate of inflection. Hence, our view of a second half recovery supported by improvement from the pandemic is still intact."

Observers said prices were being helped by fading fears about the impact of the retail-investor attack on short sellers.

'Attractively recovered'

Huge numbers of amateur traders communicating via Reddit have jolted world markets in recent weeks, joining together to push up the prices of a number of troubled companies including GameStop and AMC that fund managers had been betting would fall in value.

The move has cost several Wall Street giants huge losses and there had been a fear that investors would have to sell other assets to close out positions to protect themselves from suffering steeper losses.

"While some investors are still worried about the systematic risk and 'tip of the iceberg' scenario amid the potential fallout from last week’s retail onslaught and what paper losses could be lurking below the surface, US equities attractively recovered overnight with gains recorded in Europe as well,” said Stephen Innes, Chief Global Market Strategist at Axi.

GameStop, which had surged as much as 2,000 percent from the start of the year, dropped by a third Monday. Activists seemed to have shifted their focus to silver this week, pushing it to an eight-year high above $30 an ounce.

However, the price fell Tuesday as the CME, which controls the commodity's market, made it more expensive to trade the metal.

The trade was dimmed further as Singapore regulators said they were closely monitoring market activities for signs of false trading and other misconduct, cautioning investors of risks related to trading in securities incited by online forums and social media chat groups.

Oil prices jumped around one percent, having advanced more than two percent Monday, on hopes that demand will improve as vaccines are rolled out.

Also on ATF

Asian Markets

  • Nikkei 225 rose 1%to 28,362.17
  • Hong Kong’s HSI climbed 1.2% to 29,248.70
  • The Shanghai Composite added 0.8% to 3,533.68
  • Reporting by AFP and Reuters