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Asia extends gains as G20 heads back more stimulus

(ATF) Investor sentiment remains upbeat after record weekly US jobless claims spurred hopes of more  stimulus and took Wall Street into bull market terrirtory, with the Dow Jones index up 21% from its Monday lows. A monster stimulus commitment from G20 leaders is also fuelling this rally.

The G20 leaders said in a statement after the video summit: “We are injecting over $5 trillion into the global economy, as part of targeted fiscal policy, economic measures, and guarantee schemes to counteract the social, economic and financial impacts of the pandemic.” They said the group is “committed to do whatever it takes to overcome the pandemic”.

The pandemic has claimed 24,053 lives globally and the infection count has now exceeded 531,000 globally.

Adding to the optimism were comments from Federal Reserve Chairman Jerome Powell, who said in an NBC interview: “When it comes to lending, we are not going to run out of ammunition. That just doesn’t happen.”

The combination of the US fiscal stimulus and Fed actions has considerably weakened the dollar from its last week’s peak. The dollar index (DXY) is now seen extending its retreat to below 100 as the dollar liquidity eases, DBS analysts said in a note.

“Credit could continue to outperform with the Senate passing a $2-trillion stimulus bill yesterday, which includes a $500 bn lending program for businesses. This goes a long way in addressing market worries over technical defaults by companies. Increased availability to government loans should diminish risks of refinancing failures in the corporate bond markets,” DBS strategists Philip Wee and Chang Wei Liang said in the note.

The strength of the dollar is being closely monitored to gauge market sentiment and the extent of the damage to markets. “USD strength is no longer just a symptom of the market crisis; it risks becoming a crisis in and of itself,” said Standard Chartered strategists Steven Englander and Eric Robertson in a note. “For example, significant unhedged USD liabilities have accumulated in emerging markets (EM), and their servicing may be at risk in a weak economic environment. The magnitude and breadth of USD gains suggest that financial markets have become seriously impaired.”

This morning, Japan’s Nikkei 225 has climbed 1.38%, Korea’s KOSPI has added 2.16% and Hang Seng index has advanced 1.24%. Australia, fell after surrendering recent gains with the S&P ASX 200 1.8% lower. Regionally, the MSCI Asia Pacific ex-Japan index is 1.47% higher.

The S&P futures are up 0.6% after Wall Street’s big rally. Overnight, the Dow Jones Industrial Average rose 6.38%, the S&P 500 climbed 6.24% and the Nasdaq Composite jumped 5.6%.

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai


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