$2 trillion US economic rescue package offers comfort to global equities
INTERNATIONAL – News that the $2 trillion US economic rescue package has been agreed by Senate Republicans and Democrats should ensure that the MSCI Asia Pacific Index can post back-to-back gains for the first time in nearly three weeks.
US equity futures also currently point to further gains on Wednesday, after posting their best session in nearly 12 years overnight. Besides the eagerly anticipated US stimulus package, the Fed’s plans for unlimited quantitative easing along with Europe’s hopes of unleashing credit lines to the region could give enough cause for global stocks to climb higher over the near term.
However, the advance in equities remains merely tentative at this juncture. With stock markets closer to the bottom than to the top, investors who have been bruised by the stunning selloff in recent weeks are now desperate for any form of comfort, with the rollout of stimulus packages across the global economy being the likeliest source.
Yet, the immediate efficacy of the broad swathes of support measures remains in doubt, given that the depth and the duration of the supply and demand shocks remain entrenched at this point in time. It is uncertain whether recent gains in the stock markets will be sustained, considering that investors are still fearing the worst over Covid-19’s eventual toll on the global economy. With the VIX still at its highest levels since the global financial crisis, investors may have to brave through choppy waters for a while longer.
Dollar moderates … but not by much
The Dollar index (DXY) has moderated below the 102 handle, after the Federal Reserve’s announcement over its plans for unlimited quantitative easing prompted broad-based selling in the Greenback. The Fed’s recent efforts to ease the Dollar-funding squeeze, after opening up swap lines with more central banks around the world have also offered some measure of relief for the broader currency complex.
Once President Trump signs off on the $2 trillion US economic support package, we may see a further waning in the Greenback as risk appetite attempts a comeback. However, persistent fears over a looming global recession are expected to mitigate any near-term declines for the Greenback, considering the refuge that King Dollar offers investors during times of economic turmoil.
Gold’s revival set to kick on
Gold is seeing a resurgence after breaching the psychological $1600 level. The swathes of fiscal and monetary support packages being rolled out around the world have fueled the tailwinds in Gold, as the liquidity-related selloff gives way to a buying spree that’s more corelated with fears of a global recession.
Oil’s gains may slip from investors’ fingers
Brent futures continue to be suppressed below $30/bbl and only a revival in fundamentals will see any kind of sustained rise. While the $2 trillion US stimulus package may offset some of the demand-side concerns, its impact on Oil prices is expected to be limited, considering the risk of global markets being flooded with cheap supplies amid the OPEC+ price war.
Han Tan is a market analyst at FXTM.