The rally in Asian markets stalled on Friday as investors digested the fresh wave of stimulus measures and reassessed their forecasts of the economic damage from the pandemic.
The US House of Representatives passed a $484-billion bill to support small businesses, while the People’s Bank of China cut its targeted medium-term lending facility and the Bank of Japan is reportedly set to expand its bond-buying program.
The Nikkei 225 is down 0.8%, the Hang Seng index is off 0.2% and Korea’s Kospi benchmark is 0.42% lower. China’s main stocks benchmark the CSI 300 retreated 0.3% despite the central bank’s latest interest rate cut.
But Australia’s S&P ASX 200 is 0.8% higher supported by the commodities sectors, which received a boost from the spike in oil prices. The WTI is up 7% and Brent futures are 4.7% higher.
The PBoC cut its Targeted Medium-term Lending Facility (TMLF) by 20 basis points taking its one-year TMLF rate from 3.15% to 2.95%.
“The latest cut appears to simply be a move to align the TMLF with the lower interest rates on the PBoC’s other policy tools (including its MLF and reverse repo rates) rather than an easing move in its own right,” said Julian Evans-Pritchard, Senior China Economist at Capital Economics. “But with the economy struggling to get back on track and external headwinds intensifying, we still anticipate additional easing measures in the coming months.”
BoJ may buy more bonds
Meanwhile, Japan’s central bank will discuss shifting to unlimited purchases of Japanese government bonds next week, the Nikkei Asian Review reported.
“The BoJ also will weigh doubling yearly purchases of corporate bonds and commercial paper during the policy meeting Monday, in an effort to help cash-strapped businesses finance their operations,” it said quoting unidentified sources.
The central bank is currently aiming to increase its government bond holdings at a pace of roughly 80 trillion yen ($742 billion) a year and HSBC economists said given weak monetary transmission, the impact of a rate cut is likely to be limited.
“Fiscal policy is taking the lead to support the economy,” they said in a note published on Friday. “This may enable the BoJ to accelerate JGB purchases, with greater JGB issuance by the government.”
Meanwhile, a European Council meeting failed to agree on an economic programme and a media report said European Central Bank President Christine Lagarde told the 27 heads of government on video link that the euro-area economy could shrink by as much as 15% this year as a result of the pandemic and they “risk doing too little, too late.”
The global infections count now exceeds 2.7 million cases, while the total number of deaths is over 190,000.
Credit markets are marginally weaker on the back of the overall risk-off sentiment but investment grade issues could start to flow as issuers have started making plans.
The Asian IG series 33 index is a basis point wider at 123/125 bps but Philippines and Indonesia are bucking the trend with their CDS levels moving in.
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