Stock rally fades despite coronavirus measures

A rally in stocks faded in Asia Pacific on Wednesday despite governments rolling out support packages to shield their economies from the impact of the coronavirus pandemic.

In early trading in the region, Australia’s S&P/ASX 200 slid 5 per cent as Scott Morrison, the country’s prime minister, warned that the crisis could disrupt daily life in the country for up to six months. Markets in mainland China, Hong Kong and South Korea were either slightly higher or a touch lower.

However, Japan’s Topix benchmark rose 2.4 per cent after data showed the central bank bought a record ¥120bn ($1.1bn) of Japanese equities on Tuesday. That marked the Bank of Japan’s first major intervention in markets since it said it would double the upper limit of its annual exchange traded fund purchases to ¥12tn.

Japanese markets were also boosted by reports that Prime Minister Shinzo Abe planned to form a panel to discuss further support measures to cushion the blow of the virus outbreak.

The latest market gyrations came after the S&P 500 bounced 6 per cent overnight in a volatile session for Wall Street. The benchmark plunged 12 per cent on Monday in its worst one-day performance since the Black Monday crash in 1987. 

The US Federal Reserve on Tuesday said it would shore up overnight lending markets by providing an extra $500bn for short-term company debt, known as commercial paper. The Trump administration also said it was considering a support package worth as much as $1.2tn.

But futures trading suggested that gloom could return to Wall Street on Wednesday, tipping the S&P to fall by 2.9 per cent.

Traders in Tokyo and Hong Kong said they were treating all moves with caution given that correlation across global markets was at its highest in a decade.

“The markets are seeing real signs of government and central bank stimulus and that was always eventually going to get a response. The issue you have, though, is that nobody is taking a long-term view of this market,” said one Tokyo-based trader. “My hedge fund clients are basically turning into day-traders, because nobody wants to run a big book overnight.”

The 10-year US Treasury yield fell 8 basis points to 1.002 per cent, but remained above the 1 per cent threshold it had passed on Tuesday. Yields rise as bond prices fall.

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