March 24, 2020: Asian markets and crude prices surged while the dollar sank Tuesday after the Federal Reserve unveiled an unprecedented bond-buying programme to support the US economy.
While most of the planet goes into lockdown, traders gave a massive thumbs up to the US central bank's pledge to essentially print cash in a move not seen since the global financial crisis more than a decade ago.
The Fed, which has already slashed interest rates to record lows, said it will buy unlimited amounts of Treasury debt and take steps to lend directly to small- and medium-sized firms hammered by a lockdown across the country.
The plan failed to inspire US traders, with all three main indexes on Wall Street sliding, but equities in Asia flew out of the blocks with Tokyo ending the morning 6.7 percent higher.
The Nikkei was given extra lift by a Bank of Japan decision to embark on its own massive bond-buying scheme.
Seoul was up more than six percent, Hong Kong and Singapore each rose more than four percent, and Wellington and Taipei surged more than five percent apiece.
Sydney gained three percent, while Shanghai, Jakarta and Manila were up more than one percent.
AxiCorp's Stephen Innes said the region was waking up to “the most significant monetary experiment in the history of financial markets”.
“Asian investors like what they see from an all-in Fed, which is being viewed in a very impressive light for both Main and Wall Street, even as the US congress dithers,” he added.
And Edward Moya at OANDA called the announcement “a game changer”.
– Senate gridlock –
But Innes pointed out that US senators remain gridlocked, with Democrats on Monday again blocking a nearly $2 trillion rescue package for the economy.
“The US senate should be drawing on the experience of its failure to act fast in the 2008 crisis,” he said.
“Instead, it has yet again failed to act responsibly in the 2020 crisis. The proposed economic stimulus package is massive, but the longer the delay, the more colossal it will need to be to appease the markets.”
With an expected flood of dollars into financial markets, the greenback suffered a rare sell-off, having surged for the past few weeks.
It lost almost four percent against the Australian dollar, three percent against the New Zealand dollar and more than one percent to the South Korean won, Russian ruble and Turkish lira.
It was also lower against its major peers, with the euro up more than one percent.
The weaker dollar also helped lift crude, which has been hammered to multi-year lows by a crash in demand owing to the global lockdown as well as a price war between producers Saudi Arabia and Russia.
Moya warned that prices would likely fall again as global lockdown efforts hammer demand.
“Oil is only rallying because the Fed's unprecedented measures finally stopped the stronger dollar,” he said.
“Crude prices will have wild swings, but no one is expecting the bottom to be already in place.”
– Key figures around 0230 GMT –
- Tokyo – Nikkei 225: UP 6.7 percent at 18,026.73 (break)
- Hong Kong – Hang Seng: UP 4.2 percent at 22,595.56
- Shanghai – Composite: UP 2.0 percent at 2,712.50
- Dollar/yen: DOWN at 110.11 yen from 111.26 yen at 2200 GMT
- Euro/dollar: UP at $1.0810 from $1.0727
- Pound/dollar: UP at $1.1654 from $1.1518
- Euro/pound: DOWN at 92.91 pence from 93.11
- Brent North Sea crude: UP 4.7 percent at $28.30 per barrel
- West Texas Intermediate: UP 5.9 percent at $24.73 per barrel
- New York – Dow: DOWN 3.0 percent at 18,591.93 (close)
- London – FTSE 100: DOWN 3.8 percent at 4,993.89 (close)