Market Close May 19

Markets sober up before Powell testimony

Fed Chair Powell seen unveiling $3 trillion in Q2 borrowing; coronavirus vaccine discovery hopes drive initial gains; credit markets rally on yield-hungry investor rush

Markets sober up before Powell testimony
Markets were up in Japan and Australia, but investors were cautious ahead of testimony tonight (Asian Time) by Fed chairman Jerome Powell. File photo by AFP.

(ATF) Hong Kong: Investors turned cautious ahead of Federal Reserve chairman Jerome Powell’s testimony after the initial euphoria on hopes that a coronavirus vaccine is on the horizon. Stocks were off highs and bond yields fell but oil extended gains to a fourth session.

“Fed Chairman Powell is expected to tell the US Senate Banking Committee tonight that a full recovery next year requires not only a vaccine but also the additional fiscal support,” DBS strategists Eugene Leow and Philip Wee said in a note. “On the latter, the Treasury is banking on low rates to borrow almost US$3 trillion in 2Q.”

Japan’s Nikkei 225 added 1.49% and Australia’s S&P ASX 200 climbed 1.81% even as the Reserve Bank of Australia warned of a 10% fall in GDP in the first half.

“An economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia’s quarterly national accounts,” the RBA said in minutes of its last meeting published on Tuesday.

But Indonesia’s central bank wrong-footed the market by holding rates belying hopes of a cut in its 4.5% policy rate, in a move seen as supporting the rupiah currency.

“Despite holding off on slashing policy rates, Indonesia's central bank Governor Warjiyo has kept the door open for further rate cuts in the near term as he highlighted benign inflation,” ING Bank economist Nicholas Mapa said.

“With BI (Bank Indonesia, the central bank) retaining its accommodative stance we continue to expect more rate cuts in the coming months given expectations for a contraction in GDP as early as the 2Q.” 

Hong Kong’s Hang Seng benchmark rose 1.89% while mainland China’s CSI 300 index was up 0.85%. US 10-year treasuries added 5 basis points to 0.73% on worries about additional supplies and WTI crude rose 2.8%.

Credits rallied and primary markets were busy with investors choosing from a Bank of East Asia tier-2 offeringCountry Garden 5NC3 bond issue and Hongkong Land’s 10-year benchmark offering.  

Redco Group’s cash tender offer for its 2020 bonds was yet another instance of an increasing trend of bond buybacks and liability management exercises. Credit default swaps were tighter, with the Asia IG index moving in by 3 basis points to 112/113 and  sovereign CDS tighter by 4 to 20 basis points.

Also on Asia Times Financial

Beijing plans a 'New Era', bins Xi's 'China Dream' 

US-China chip battle burning firms on both sides 

China's annual meet to set growth target, fiscal boost 

Foreign Exchange: Ahead of NPC, high expectations of added stimulus

Asia Stocks

· Japan’s Nikkei 225 added 1.49%

· Australia’s S&P ASX 200 advanced 1.81% 

· Hong Kong’s Hang Seng index rose 1.89%

· China’s CSI300 climbed 0.85%

· The MSCI Asia Pacific index 1.88%.

Stock of the day 

Akeso Inc. rose as much as 9.8% after the drugmaker announced progress in developing a drug for the treatment of tumours.