Asia Stocks to Gain After Fed Ignites Risk-On Mood: Markets Wrap

Asian stocks are set to gain on Tuesday after the Federal Reserve said it will begin buying a broad portfolio of corporate bonds, overshadowing concerns of a second pandemic wave and helping lift U.S. equities.

Futures were higher in Japan, Australia and Hong Kong. S&P 500 Index futures ticked higher at the open after the benchmark closed up 0.8% after swinging from loss of as much as 2.5% amid second-wave concerns, to a gain of as much as 1.3%. That was triggered by the Fed saying it willbegin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds. Oil rebounded after dropping to less than $35 a barrel. Treasuries dipped and the dollar retreated against major peers.

After a fierce rally sent global equities close to their pre-pandemic levels, sentiment in markets turned negative in the past week. Economic data across the board suggests that the global economy is still weak and there are fears of a second-wave of the virus amid efforts to fire up activity after the lockdowns.

“The initial reaction seems to be that the Fed still has the market’s back even though they expect the economy to be weak for a longer time frame,” said Matt Maley, chief market strategist for Miller Tabak + Co. “The Fed is telling the markets that they want to keep credit spreads under control.”

The Fed’s purchases of corporate bonds will be made by the Fed’s Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds. The central bank said it would follow a diversified market index of U.S. corporate bonds created expressly for the facility.

Elsewhere, oil was back around $37 a barrel amid signs of improving demand and declining production.

These are some key events coming up:

  • Policy decisions from the Bank of Japan, Bank of England and the Swiss National Bank are due this week.
  • CBOE plans to open its trading floor, which has been electronic only since March 16.
  • Federal Reserve Chairman Jerome Powell delivers his semi-annual policy report to Congress.

These are some of the main moves in financial markets:

Stocks

  • S&P 500 futures rose 0.4% as of 7:05 a.m. in Tokyo. The S&P 500 Index rose 0.8% in New York.
  • Nikkei 225 futures rose 2.7%,
  • Australia’s S&P/ASX 200 Index futures rose 2.5%.
  • Hong Kong’s Hang Seng Index futures added 1.7%.

Currencies

  • The Japanese yen was little changed at 107.42 per dollar.
  • The offshore yuan was at 7.0699 per dollar.
  • The euro traded at $1.1324.
  • The Bloomberg Dollar Spot Index fell 0.3% Monday.

Bonds

  • The yield on 10-year Treasuries climbed two basis points to 0.72% Monday.

Commodities

  • West Texas Intermediate crude was little changed at $37.11 a barrel after climbing 2.4%.
  • Gold was at $1,726.76 an ounce.

— With assistance by Katherine Greifeld, and Vildana Hajric

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