Market Close Jul 21

Vaccine tests and stimulus boost investor sentiment

Vaccine hopes boosts market sentiment; China-UK friction makes investors jittery; Credit markets stay busy with new issues

Vaccine tests and stimulus boost investor sentiment
...And Breathe: German Chancellor Angela Merkel puts her mask on during a last roundtable discussion following a four-day European summit at the European Council in Brussels, Belgium where EU leaders approved a EUR750 billion package to revive their coronavirus-ravaged economies. Photo: STEPHANIE LECOCQ / POOL / AFP

(ATF) Financial markets rallied on news about successful tests of coronavirus vaccines and hopes of more stimulus from US after European leaders agreed to a 750 billion euro recovery fund.

Japan’s Nikkei 225 benchmark advanced 0.73%, Australia’s S&P ASX 200 jumped 2.58% and Hong Kong’s Hang Seng benchmark jumped 2.31%. China’s mainland index the CSI 300 edged up 0.23%, off earlier highs amid the escalating tensions with UK which suspended its extradition treaty with Hong Kong, in protest at a controversial new security law in the territory. China said it would respond strongly to Britain’s suspension. 

European Union leaders  reached a deal on a 750 billion euro stimulus plan for their coronavirus-blighted economies at a pre-dawn meeting on Tuesday.

“We think the recovery fund is a key ingredient for the European response to the shock,” said BofA Securities analysts in a note. “A political signal towards more Europe was needed when the narrative became toxic in March. This is what the Recovery Fund provides.”

But they added Its strong political message still trumps its economic power.

“The ECB is not off the hook and the governance structure of the fund can easily lead to volatility.”

Investors are now hoping for another round of US economic stimulus after congressional Republicans announced plans to seek another $1 trillion in coronavirus economic relief. But again there is caution about a stimulus in the world’s largest economy.

 “We see a risk of policy exhaustion, especially in the U.S. Additional unemployment benefits and small business support are set to expire, and states may be forced into austerity to close large budget shortfalls. We could see a $1-1.5 trillion fiscal package that extends some (but not all) federal stimulus measures through late-2020,” said BlackRock analysts in a report.

Credit markets had another strong day with the Asia IG index one basis point tighter at 76/77 bps and sovereign CDS moving in by 2-3 basis points. After China Huarong, and GS Caltex priced deals overnight ICBC International , State Power Investment Corp. , and Mirae Asset Daewoo are in the market with bond offerings. Megaworld Corporation announced a mandate for a potential bond issue. 

Also on Asia Times Financial

Car industry sees bright future – analysts don't

China turns divided bond markets into ‘one-stop shop’ 

EU reaches pandemic recovery deal after marathon summit

China banks' bond underwriting jumps 29%

Eat the weak  

US Democrats, White House to meet on coronavirus aid

UK suspends extradition treaty with Hong Kong

Asia Stocks

· Japan’s Nikkei 225 advanced 0.73%

· Australia’s S&P ASX 200 climbed 2.58% 

· Hong Kong’s Hang Seng index jumped 2.31%

· China’s CSI300 edged up 0.23%

· The MSCI Asia Pacific index added 1.07%.

Stock of the day

CanSino Biologics  rose as much as 8% after the company said it had positive results at a clinical trial for the Recombinant Novel Coronavirus Vaccine. “The Ad5-vectored COVID-19 vaccine at 5×10 10 viral particles is safe, and induced significant immune responses in the majority of recipients after a single immunisation,” it said in a statement.