The US Federal Reserve extended a lifeline to risk assets overnight. The Fed will kick-off its corporate bond purchase program, and has created an index that will make more companies’ securities immediately eligible. The boost to credit markets spilled over to other asset classes. The US dollar weakened, shares rebounded and bonds came under pressure as market sentiment tipped back to risk on.
Higher beta currencies were major beneficiaries as the US dollar slid. The Australian and New Zealand dollars are both a US cent higher than yesterday’s lows, and the Euro rose through 1.1300. Cryptocurrencies disappointed again, and NEO and Stellar Lumens shed more than 3% overnight.
The key question for investors and traders is whether the gains represent a change in sentiment or a short-term sugar hit. Market wobbles last week were based on increasing concern about secondary viral outbreaks. The risk remains. US cases increased by 19,000 on Monday, adding 0.9% to the total. Outbreaks in China, Japan, India, Germany and South America raise fears of a second wave of global infection.
Futures markets point to a strong opening round across the region. Japanese and Australian index futures are more than 2% higher, and Hong Kong and Singapore are up around 1.5%. The Bank of Japan is unlikely to make any changes to interest rates or its asset buying at the two-day meeting that concludes this afternoon. Traders are expecting a yawn-fest, with a Covid-19 watching brief.