Global stocks rally on hopes of a boost to US pandemic relief package

Japanese shares led the rise in Asia, with the Nikkei 225 climbing to its highest level in more than 30 years

FILE - In this Nov. 23, 2020 file photo, a street sign is displayed at the New York Stock Exchange in New York.  Stocks were moderately higher Monday, Dec. 28 in the final week of 2020 after President Donald Trump signed a $900 billion economic aid package that helps reduce uncertainty amid the re-imposition of travel and business curbs in response to a new coronavirus variant. (AP Photo/Seth Wenig, File)
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Global stocks headed for fresh highs on Tuesday, with a rise in Asian markets and US equity futures on hopes that the massive US pandemic economic stimulus may be expanded further.

Japanese shares led the rally in Asia, with the Nikkei 225 index climbing to its highest level in more than three decades.

The jump followed the S&P 500 Index, the Dow Jones Industrial Average and the Nasdaq Composite on Monday night touching all-time highs, while S&P 500 Futures rose 0.5 per cent.

The positive sentiment continued when US markets opened on Tuesday morning. The S&P 500 was up 0.4 per cent at 7pm UAE time, led by health care, real estate and energy stocks, while the Dow rose 0.3 per cent to 30,485 and the Nasdaq edged 0.2 per cent higher.

Risk appetite improved after President Donald Trump signed into law the combined $2.3 trillion Covid-19 stimulus and government-funding package. The $900 billion pandemic relief bill is the second largest following the $2tn Cares Act package approved by the US Congress in March.

Japan’s Nikkei share average on Tuesday rose 2.59 per cent at 1.01pm UAE time. Benchmarks in Australia and Hong Kong were also up, with the S&P/ASX 200 Index rising 0.52 per cent and the Hang Seng Index climbing 0.96 per cent. South Korea’s Kopsi gained 0.42 per cent, while the Shanghai Composite Index dipped 0.54 per cent.

Investors celebrated the US House backing Mr Trump's demand to boost the size of relief cheques for Americans.

“Markets have praised the move,” Vijay Valecha, chief investment officer at Century Financial, said. “It comes as a breath of fresh air for financial markets.”

Elevated jobless claims and weak personal savings and consumer confidence data required a much-needed fiscal stimulus that provided support to the US economy, Mr Valecha added.

“Hopes of $2,000 direct payments to the eligible US citizens would act as a cushion while directly translating into an improved consumer spending scenario, uplifting the global markets,” he said.

Stocks in Europe also made a positive start, with Euro Stoxx 50 gaining 0.65 per cent, Germany's DAX Index rising 0.75 per cent and the UK’s FTSE 100 climbing 1.87 per cent after European leaders approved the Brexit trade bill on Monday.

The US House of Representatives on Monday passed a bill replacing the $600 stimulus cheque in the newly enacted virus relief bill with $2,000 payments. The bill now heads to the Senate, creating a political dilemma for Republicans, many of whom have previously opposed stimulus payments larger than $600.

A further boost in economic relief for millions of Americans brightens prospects of a quicker recovery in the world’s biggest economy. In response, Goldman Sachs Group has upgraded its first quarter US economic growth forecast on the back of the stimulus measure.

“All of this is taking place on the back of positive optimism among traders who feel pleased that the US economy has plenty of support from the fiscal and monetary policy side,” Naeem Aslam, chief market analyst at Avatrade, said.

The US, however, is facing a rise in Covid-19 infections as hospitalisations reach new highs. The US, along with many other nations, has tightened restrictions to stem the spread of a more infectious strain of Covid-19 and continues to roll out vaccines to curtail the pandemic.

The vaccine optimism is still supporting the markets, Mr Aslam said.

“On the coronavirus front, the vaccine rollout continues in the US,” he said. “This is making investors comfortable that the worst may be over … and the pandemic may have passed its climax.”