Via Financial Times

Stocks across Asia followed Wall Street higher on Wednesday as governments stepped up support measures to shield their economies for the impact of coronavirus.

However, investors warned that the rebound was likely to be temporary as futures trading pointed to another gloomy session in New York.

Japan’s benchmark Topix index climbed 3 per cent after data showed the central bank bought a record ¥120bn ($1.1bn) of Japanese equities on Tuesday. That marked the Bank of Japan’s first major intervention in markets since it said it would double the upper limit of its annual exchange traded fund purchases to ¥12tn.

Japanese markets were also boosted by reports that Prime Minister Shinzo Abe planned to form a panel to discuss further support measures to cushion the blow of the virus outbreak.

China’s CSI 300 index rose 1.6 per cent and Hong Kong’s Hang Seng edged up.

But bucking the trend, Australia’s S&P/ASX 200 slid 6.7per cent as Scott Morrison, the country’s prime minister, declared a “human biosecurity emergency”, advised citizens to abandon overseas travel and warned that the crisis could disrupt daily life in the country for up to six months.

The latest market gyrations came after the S&P 500 bounced 6 per cent overnight in a volatile US trading session. The benchmark plunged 12 per cent on Monday in its worst one-day performance since the Black Monday crash in 1987. 

The US Federal Reserve on Tuesday said it would shore up overnight lending markets by providing an extra $500bn for short-term company debt, known as commercial paper. The Trump administration also said it was considering a support package worth as much as $1.2tn.

READ ALSO  Merkel’s centrist legacy hangs over the new CDU leader

But futures trading suggested that selling would resume on Wall Street on Wednesday, tipping the S&P to fall by 3 per cent. US Treasury secretary Steven Mnuchin warned the pandemic could send US unemployment to as high as 20 per cent if Washington does not roll out further measures to boost the economy.

“The jury is still out on whether these measures will help stabilise financial markets,” said Michael Strobaek, chief investment officer at Credit Suisse, who added that investors should stay on the sidelines.

Traders in Tokyo and Hong Kong said they were treating all moves with caution given that correlation across global markets was at its highest in a decade.

“The markets are seeing real signs of government and central bank stimulus and that was always eventually going to get a response. The issue you have, though, is that nobody is taking a long-term view of this market,” said one Tokyo-based trader. “My hedge fund clients are basically turning into day-traders, because nobody wants to run a big book overnight.”

The 10-year US Treasury yield fell 8 basis points to 1.002 per cent, but remained above the 1 per cent threshold it had passed on Tuesday. Yields rise as bond prices fall. The Japanese yen, which also frequently serves as a haven asset in times of market turbulence, climbed 0.5 per cent to ¥107.15 per US dollar.