Global stocks rise as BoJ launches new stimulus round

Global stocks climbed after stimulus measures from Japan’s central bank highlighted the lengths policymakers are willing to go in their efforts to shore up the world economy. 

The Stoxx 600 rose 1.7 per cent in mid-morning Monday trading, close to its high for April. Still, that puts the European composite index nearly 20 per cent down for the year. London’s FTSE 100 gained 1.7 per cent. Frankfurt’s Dax rose 2.4 per cent.

Japan’s Topix benchmark added 1.8 per cent after the Bank of Japan pledged to buy an unlimited quantity of government bonds as part of its efforts to support the world’s third-largest economy. The BoJ said it would quadruple its limit on corporate debt purchases to ¥20tn ($186bn).

Investors are pinning their hopes on more stimulus measures from central banks in the US and Europe to combat the economic impact of the coronavirus.

“Stocks, as usual, are much more optimistic that the recovery will come, even if it may be delayed,” said Christopher Smart, chief global strategist and head of the Barings Investment Institute. “Some of this is surely helped by central bank programmes to purchase corporate debt.”

As Mr Smart points out: “Some may be a market getting ahead of itself. But part of the discrepancy could be that investors are already looking past this year’s blow to next year’s vaccine, when more normal activity is easier to picture.”

The US Federal Reserve convenes on Tuesday for its scheduled two-day monetary policy meeting while pressure is on the European Central Bank to deliver yet more at its meeting two days later.

“With the pace and scale of what has already been announced, it is going to be much harder for central banks to positively surprise from here,” said Matthew Cady, investment strategist at Brooks Macdonald, which has £12.2bn under management. The Fed “only really [has] fine-tuning left”, he said, adding that the “market is sensing that some central banks might be running out of fresh ammunition”.

Futures trading pointed to gains of 1 per cent for the S&P 500 when the US market opens on Monday. 

The yield on 10-year US Treasuries edged up 0.01 percentage point to 0.613 per cent.

Gold turned positive with a 0.1 per cent climb at $1,725.30 an ounce. The precious metal last week touched $1,775 an ounce, its highest level this year. 

The Fed this month said it would buy exchange traded funds that own high-yield bonds, adding to existing measures that include purchasing corporate debt. The US central bank slashed rates to near zero in March.

“Central banks are likely to wind back a little, focusing less on blockbuster new programmes and more on improving the operational aspects of existing programmes,” said Frederic Neumann, co-head of Asia economic research at HSBC. The ECB and the Fed “will probably stop to catch their breath”.

Investors will be focusing this week on reports on US and eurozone gross domestic product for the first quarter of 2020. The figures are expected to shed light on the magnitude of the drop in output caused early this year by the coronavirus pandemic and ensuing lockdowns. The data will be released as major listed companies report on their quarterly earnings and their outlook for the future. 

Adidas, one of the world’s biggest makers of sportswear, warned on Monday that coronavirus could push it in the second quarter to its first loss in more than four years as its revenues shrink due to store closures. 

“So far markets looked away from collapsing macro indicators but our equity strategy team remains concerned about potential setbacks,” said Jussi Hiljanen, a strategist at Swedish bank SEB. 

In commodities markets, oil prices sold off on Monday after one of the most turbulent weeks in history for crude oil. Brent, the international benchmark, trimmed some its earlier losses to fall about 2 per cent in mid-morning trading on Monday. The US standard West Texas Intermediate was down 13 per cent at $14.62. 

Fears over the global economic hit from the Covid-19 pandemic have pummelled demand for crude, with prices for WTI last week turning negative for the first time in history.

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