Stocks extend rally on U.S. stimulus, virus worries persist

On Wednesday, emerging market shares extended gains following a bumper session on Wall Street as Washington reached a deal on a $2 trillion economic rescue package to cushion the impact of the coronavirus outbreak. 

U.S. Senators and the Trump Administrations agreed on the deal on Wednesday, which includes a $500 billion fund to help hard-hit industries with loans and a comparable amount for direct payments of up to $3,000 to millions of U.S. families. 

Wall Street indexes jumped between 8% and 11% in anticipation of the agreement, which follows an announcement from the U.S. Federal Reserve of unlimited quantitative easing. The combined effect, along with other monetary and fiscal measures taken across the globe, lifted the MSCI’s index of emerging market shares 3.9%, building on Tuesday’s 5.7% jump – the first consecutive gain in more than two weeks. 

“With stock markets closer to the bottom than to the top, investors bruised by the stunning selloff in recent weeks are desperate for any form of comfort, with the rollout of stimulus packages… being the likeliest source,” Han Tan, market analyst at FXTM, said. 

On Wednesday, the U.S. Senate is to vote on the stimulus package later, and the House of Representatives is expected to follow soon after. 

South Korean stocks jumped almost 6% to lead the pack. Other emerging stock indexes across Asia, Europe and Africa rose between 1.2% and 5.8%. 

The EM stock benchmark is still down 25% for the year, while its currency counterpart is down 6%. 

With massive restraints on movement across many emerging economies – India’s 1.3 billion people in total lock down – and their inability to replicate advanced peers’ fiscal spending strategies to mitigate the pain, economic recession is inevitable. 

Asian currency moves were more temperate as the dollar attempted to recover, but the greenback remained in the red. 

South Africa’s central bank said it would begin buying an unspecified amount of government bonds. As local bonds rallied, the currency firmed 0.6%. 

All eyes are on a review by Moody’s on Friday when some analysts expect the ratings agency to strip the country of its last investment grade rating. 

Buoyant oil prices helped to drive a 1% jump in the Russian rouble, in its third session of gains. 

In Turkey, the lira rose 0.2%. In one of its most aggressive steps, Turkey’s central bank opened a 90-day repo auction with a volume of 15 billion lira and an interest rate of 8.25% – 150 basis points below its policy rate. 

Reported by Susan Mathew 

Sourced Reuters 

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