Hong Kong: Stocks in Japan and Australia bounced higher on Wednesday and the yen steadied as investors edged away from safety plays on hopes that a salvaged Wall Street rescue plan in Washington could keep global equities rallying.
US political drama over a $700 billion plan for the government to buy illiquid securities has whipsawed markets, but expectations that Congress will pass something soon drove a 5.3% rally in the S&P 500 stocks index overnight, erasing more than half of Monday’s market plunge.
In another sign that willingness to take risks has returned as the final quarter of 2008 opens, the yield on 1-month US Treasury debt climbed 17 basis points to 1.75%. The yield had briefly turned negative last month as investors stashed money into very liquid, short-maturity US government debt to wait out a massive reduction in risk taking.
Still, money markets reflect a nagging reluctance by banks to lend to each other, which is clogging up the flow of credit.
Europe’s banking industry is under fire after a second bank had to be rescued. And, even if a deal is brokered in Washington, it is not clear it would do much to stimulate the US economy.
“Even though the bailout now appears likely to pass, there’s still a lot of unknowns about it, and then it has to actually be carried out,” said Hideyuki Ishiguro, a supervisor in the investment strategy department of Okasan Securities in Tokyo.
Japan’s Nikkei share average climbed 1.3% on Wednesday after posting its biggest monthly decline in 8 years in September. Shares in Canon rose 4.7%.
The stock gains pushed down 10-year Japanese government bond futures to a 2-month low, off more than a full point to 136.39.
Australia’s benchmark S&P/ASX 200 share index rose more than 3% but is not far above its lowest since November 2005, hit only two weeks ago. Many Asian markets were closed for holidays, including China, Hong Kong and Singapore.
In a sign of how volatile markets remain, the Dow Jones industrial average rose 4.68 % on Tuesday in its best day for six years, a day after its biggest fall since just after the 1987 stock market crash.
The US dollar was steady against the yen at 105.85 yen and the euro was up 0.2% to 149.90
The US Senate agreed to vote on the financial rescue package on Wednesday night that will include a sharp increase in the amount of bank deposits insured by the federal government. The euro was down 0.1% at $1.4105 after the 15-nation currency dropped 2% overnight.
Meanwhile, short-term money markets continued to reflect elevated levels of stress. On Tuesday, the spread of 3-month London interbank offered rates over overnight index swap rates widened to records in dollars, sterling and euros.
The spread is critical in determining credit market conditions because it reflects the premium the market demands over anticipated benchmark central bank interest rates.
Focus among investors will be whether these signs, which suggest the financial crisis is far from over, will douse a rally in global stock markets.