Stimulus efforts fuel markets rebound

Global sharemarkets, the Australian dollar and industrial commodities rebounded on Tuesday.

Global sharemarkets, the Australian dollar and industrial commodities rebounded and the recent flight to the US dollar eased on Tuesday, amid a strengthening resolve among governments in Europe and the US to provide unprecedented monetary and fiscal stimulus to offset a sharp economic contraction caused by lockdowns to stop the coronavirus, and as analysts argued for portfolio rebalancing.

Australia’s S&P/ASX 200 share index rose 190 points, or 4.2 per cent, to 4735.7 points — its best day in a week — after surging 125 points in the final 30 minutes. The dollar jumped US1.1c, or 1.8 per cent, to US59.45c, while Australia’s 10-year government bond yield was little changed.

Heavily oversold stocks in the energy, real estate and technology sectors led gains, with Santos up 21 per cent amid rebounding crude oil prices.

GPT surged 18 per cent, Afterpay rebounded 26 per cent and BHP rose 5.1 per cent.

Macquarie Group jumped 11 per cent and three of the four major banks rose more than 5 per cent after Citi upgraded the sector to “buy”.

The US dollar fell 0.8 per cent against its trade-weighted index after surging 9 per cent in two weeks, while COMEX copper ­futures bounced 3.3 per cent and WTI crude oil futures rose 6.1 per cent.

Around the region, Japan’s Nikkei 225 surged 7.1 per cent despite a stronger yen, while China’s Shanghai Composite gained 2.3 per cent. The Hang Seng rose 4.4 per cent and the KOSPI rose 8.6 per cent.

The moves came as S&P 500 futures rose as much as 4.8 per cent, pointing to a bounce on Wall Street, after a damaging 34 per cent bear market in the past five weeks as harsh lockdowns to stop the spread of the coronavirus threatened to trigger the sharpest recession since the Great Depression.

After “severe deleveraging” in global markets in recent weeks, central bank and government backstops were “getting bigger by the day [and] should not only help to normalise volatility over the coming weeks but also make retail investors stock panicking and stop rushing to raise cash and liquidity,” JPMorgan global equity strategist Nikolaos Panigirt­zoglou said.

While the blockage of a $US2.1 trillion ($3 trillion) US fiscal package in the Senate had caused fear of another major sell-off in global markets on Monday, the losses proved less than expected thanks to fiscal stimulus plans in Germany and an extension of asset buying plans in the US.

Germany announced a plan for a supplementary budget that suspends the constitutional balanced budget law and allows for more than €750bn ($1.36 trillion) of new debt with a €600bn rescue fund to provide companies with loans, guarantees and equity stakes and the US Federal Reserve committed to buying an unlimited amount of debt, including commercial mortgages as well as government and residential mortgage-backed securities, plus a $US300bn funding package to support households and businesses.

JPMorgan’s Mr Panigirtzoglou estimated that balanced, or “60:40” mutual funds managing $US4.5 trillion globally, needed to buy about $US300bn of equities to fully rebalance to a 60 per cent ­equity allocation. “The timing of these rebalancing flows is uncertain, but even if one-third of the above $US850bn of pending rebalancing flows is done over the next few weeks, that should also help to reduce volatility and to lift equity prices higher from here,” he said.

Similarly, BlackRock Investment Institute analysts backed a rebalancing of portfolios towards benchmark asset-class weights by buying equities after drastic moves in recent weeks.

“Sharp equity sell-offs and government bond yield declines have mechanically turned many port­folios underweight equities and overweight bonds,” BlackRock analysts said.

An unprecedented mass withdrawal of earnings guidance by companies globally in response to the coronavirus pandemic was a stark reminder of the uncertainty haunting the market.

BWP Trust, Healius, Cleanaway, Retail Food Group, Seven West Media and Cardno were the latest Australian companies to say they could no longer provide any earnings guidance because of the virus.

There was also renewed hope that a major US fiscal stimulus would be passed in the near future after the US Democrats proposed a larger $US2.5 trillion package, and US President Donald Trump indicated he wanted to end US lockdowns as soon as possible.

Mr Trump said in regard to increasing lockdowns in the US that “we can’t have the cure be worse than the problem”, a sentiment later backed by the Democrat governor of New York state Andrew Cuomo, who said “you can’t stop the economy for ever”.

ANZ senior international economist Brian Martin said the broader and unlimited quantitative easing announced by the US Federal Reserve on Monday “paves the way for gigantic fiscal expansion”.