Equity markets mixed stimulus row dents optimism

HONG KONG (AFP) – Asian and European markets were mixed yesterday but investors are struggling to reignite the rally that has characterised much of the past six months, owing to a stuttering economic recovery and United States (US) lawmakers’ failure to agree a new stimulus.

With coronavirus showing no sign of easing as fresh spikes around the world see the re-imposition of containment measures including lockdowns, traders are growing increasingly worried about how long it will take to get back on track.

Trillions of dollars in government and central bank cash have provided much-needed support to economies – particularly equity markets – and none more so than in the US.

And with the first massive rescue package having run its course and Federal Reserve monetary policies such as record-low interest rates having limited effect, pressure is growing on Congress to come up with more help, with the head of the central bank leading the calls.

But there is little hope Republicans and Democrats are anywhere close to reaching a compromise after weeks of bickering.

With nearly 30 million Americans receiving government help, observers said there was growing concern about the impact on the crucial consumer sector that drives the world’s
top economy.

House speaker Nancy Pelosi on Thursday again pledged to press ahead with talks on a new deal, but said Republicans are unwilling to compromise on the size.

“We have a massive problem in our country,” she told reporters, while White House Chief of Staff Mark Meadows said he was “not optimistic” Pelosi would want to have a “meaningful” conversation if dialogue resumed.

The standoff continues despite US President Donald Trump calling this week for Republicans to increase their proposal.

While the Fed essentially said on Wednesday that interest rates would remain low for at least three years, Tapas Strickland at National Australia Bank said it disappointed some.

He added that traders “had expected the Fed to show greater willingness to step in and fill the fiscal void given the US Congress seems unwilling/unable to agree to a new fiscal package.

“The Democratic leadership are still pushing for a larger package (latest being USD2.2 trillion), while Republicans are divided with many still strident that any package must be below USD1 trillion.”

Matthew Sherwood, at Perpetual Investment Management, warned of the need for consumers to get back to their spending ways in order for the economy to pick up.

“Fiscal policy needs to really step up,” he said. “Consumer sentiment data and the employment picture still reflect a fragile recovery which needs to be bolstered by higher incomes.”

Shanghai led gains, rising more than two percent, while Hong Kong, Tokyo, Seoul and Mumbai also advanced. Bangkok and Jakarta were also slightly higher, though Sydney, Singapore, Wellington and Manila were in the red.

London and Paris fell soon after opening while Frankfurt was flat.

On currency markets, the pound faced fresh pressure after the Bank of England suggested it could adopt a policy of negative interest rates to kickstart the battered economy.

“Given the looming risk of a no-deal Brexit and the recent resurgence in Covid-19 cases in the country, investors are also taking the possibility seriously,” Strickland added.