Stock Traders Back to Chase Rally Restored by Stimulus 

(Bloomberg) --

A sense of despair among investors on Monday has been quickly replaced by renewed optimism as the world’s major central banks again flex their muscles to aid early economic recoveries.

Stocks from Europe to Asia swung back to gains in force on Tuesday after the rally had lost steam in recent sessions. The S&P 500 futures rose as much as 1.7% as investors continued to pile in after a turnaround overnight not seen since 2016. The Stoxx Europe 600 Index was up 2.7% at noon in London, poised for its best advance in almost a month.

The guardians of the global economy came back to support the markets just when the historic rebound was faltering on fears of a second wave of coronavirus infections. The Bank of Japan on Tuesday raised the estimated size of its virus aid while China will sell new special sovereign bonds to fight the pandemic. The measures add to corporate bond-buying plans by the Federal Reserve and a report on the Trump administration’s $1 trillion infrastructure proposal.

“The Wall of Money traders are encouraged by the incredulous amounts of stimulus that just landed in their lap,” said Stephen Innes, a market strategist at AxiCorp. “The policy taps are getting turned up faster than ever, and investors are tripping over one another to buy any stock on offer today.”

Here’s a selection of comments on the state of markets from analysts and investors:

More Gains Ahead

The rally will sustain over the next few days, “the only way it won’t is if we start seeing large scale shutdowns in either the U.S. or China due to Covid-19,” said Jeffrey Halley, a market analyst at Oanda Asia Pacific Pte Ltd. “The world is definitely moving to growth over graves now though.”

“The Federal Reserve announcements on corporate bond buying and the expansion of its SME lending programme stopped the rout overnight,” Halley said. “That saw Asia also bounce with the Trump headline boosting that sentiment.”

Calm on Second Wave

The “markets basically were worried about a second wave but they’ve calmed down on that a bit,” said John Vail, chief global strategist at Nikko Asset Management Co. in Tokyo. “There’s more stimulus contemplated.”

Some people had thought that the Fed wouldn’t take more steps as credit markets have already stabilized, Vail said. “So I guess some people were surprised that it’s deciding to go ahead and buy on that basis.”

Investors in Japan equities are also reacting to cheap valuations and the point that Japanese stocks were not as “excessively optimistic” as those in the U.S., he said.

‘Whatever it Takes’

“Markets were most interested in the virus measures package, and by pushing out a whopping figure of 110 trillion yen ($1 trillion), the BOJ has signaled that it’s capable of giving further support,’ said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management. “Trump’s comments about infrastructure investment is also serving as a tailwind for Japanese equities.”

For United First Partners’ Head of Asian Research Justin Tang, a wave of new stimulus measures by the U.S. and the Bank of Japan’s “whatever it takes” message have moved the focus from the second wave of infections for now.

‘Wild Card’

“We broadly see this phase of consolidation to be a chance to opportunistically and incrementally buy companies with resilient balance sheets that will benefit from the economic re-opening,” said Eli Lee, head of investment strategy at Bank of Singapore.

“That said, the situation regarding second waves of infection is clearly a wild card, and needs to be watched carefully.”

©2020 Bloomberg L.P.