October 6, 2020
Asian stock markets advanced to a two-week high during Tuesday’s session after U.S. President Donald Trump was discharged from hospital following treatment for COVID-19 and as a fresh U.S. stimulus package looks more likely. Bonds and the USD nursed losses amid the improving risk appetite.
Trump returned to the White House on Monday after a three-night hospital stay and said he felt “real good”, though one of his doctors cautioned that he may not be out of the woods yet.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.71% to a two-week-high, led by Hong Kong climbing 0.88%. Japan’s Nikkei also added 0.41%.
U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone for about an hour and were preparing to talk again Tuesday, continuing their work towards a deal on coronavirus relief spending. In addition to President Trump’s health, “there is also some market attention on whether the U.S. Congress will pass the extra stimulus bill,” said Tai Hui, Chief Asia Market Strategist, J.P. Morgan Asset Management. “If we do see some form of stimulus coming through, I think the market will take it in a positive light as much of the important support from the previous round has expired,” he said.
S&P 500 futures rose 0.08% after the best daily gain on the S&P 500 index in a month overnight. Australia’s ASX 200 was more subdued, up 0.17%, ahead of a central bank meeting at 03:30 am GMT, and the government’s budget later in the day. China’s markets remain closed for a holiday.
Asian markets on Monday unwound most of a Friday sell-off in the wake of Trump’s COVID-19 diagnosis. That improvement also caused Wall Street to rally sharply overnight with energy, tech, and healthcare stocks leading. The Dow Jones rose 1.7%, the S&P 500 1.8%, and the Nasdaq 2.3%.
Bond markets also joined in, with the safe-haven asset being sold, especially at the long end, in line with the optimistic mood. The yield on U.S. 30-year government bonds rose 10 basis points to a four-month high of 1.5930%, before easing slightly. Benchmark 10-year yields hit a more than five-week high and held just shy of that in Asian morning trading at 0.7634%.
“Improved near-term stimulus prospects and then potentially bigger deficits under a Biden presidency that has the benefit of a clean sweep, are behind the yield gains here,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.
In currency markets, the dollar was under pressure on other majors apart from the yen, since higher yields can often draw flows from Japan. The JPY hovered at 105.7 per dollar, while the risk-sensitive AUD and NZD edged ahead, with the Australian dollar last up 0.13% at $0.7191.
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James Stone is our Lead Forex and Indices Analyst.
James is a professional market analyst and day trader in Forex and Bitcoin.
He holds an MBA in Investment Finance and is working towards his Ph.D.
Before joining FVPTrade, James served as a senior analyst at Forex Live.