The US Senate’s unanimous approval of a $US2 trillion ($3.4 trillion) coronavirus relief package boosted Australian shares and kept the momentum behind an incredible three-day rally intact, narrowing the equity market’s losses to less than 30 per cent since the pandemic broke out.
The S&P/ASX 200 index closed 2.3 per cent higher at 5113 points meaning the local sharemarket has now recovered 12.5 per cent since March 22 on its best three-day gain since the global financial crisis in 2008.
The US Senate’s emergency vote was finalised just before midnight in Washington, with a 96-0 vote in favour easily surpassing the 60 votes needed. “A fight has arrived on our shores,” said Senate majority leader Mitch McConnell. “We did not seek it. We did not want it. But now, we are going to win it.”
The bill hit a snag on Wednesday as Republican lawmakers opposed the unemployment provisions senator Bernie Sanders insisted that he would slow the bill’s progress if the Republicans didn’t withdraw their threat.
Despite the disagreement, just before 1pm AEDT, the Senate confirmed that it would vote on the stimulus bill within hours, sparking a broad-based rally on the local market.
The bill was passed just before 3pm AEDT, helping the market to its session high, up 3.5 per cent, before giving back some of those gains into the close.
House majority leader Steny Hoyer said the stimulus bill would be considered on Friday. The stimulus package was first announced last week and was estimated to be worth $US1.2 trillion.
However, negotiations between Congressional Republicans and Democrats swelled the package in the last few days, as Democrats pushed for more safeguards for American workers in addition to oversight on how funding would be doled out.
James McCann, senior global economist at Aberdeen Standard Investments, said the bill could not stop a recession but should prevent the health crisis taking down the financial system with it.
“Whether this package ultimately is enough depends in large part on how long the lockdown lasts,” he said.
“We’ve seen President Trump already pushing to relax the lockdown because he knows much of his bid for re-election hinges on the strength of the economy. He is painted into a corner.
“Relaxing the lockdown would almost certainly put lives in jeopardy and could do even more damage in the long term. However, his economic record looks less and less credible the longer the current shutdown goes on.”
The economist also warned that the exponential pace of the virus’s spread meant the $US2 trillion sugar hit could prove insufficient.
“If the economic data in coming weeks is much worse than current predictions, this package could end up not being enough and Congress will find itself back at square one.”
RBC Capital Markets rates strategist Su Lin Ong warned that Australia faced three consecutive quarters of economic contraction in 2020.
The second quarter of 2020 could throw up a 5.5 per cent contraction over the March quarter, with a total gross domestic product contraction of 3.8 per cent in the calendar year.
Unemployment is also forecast to increase to between 9.5 per cent and 10 per cent over the third quarter, and underemployment is tipped to move sharply higher.
The S&P/ASX 200 Index has narrowed its losses to 28.6 per cent since its decline started on February 20 and is now at its highest level since March 17.
The Australian dollar bought US59.2¢ on the closing bell, down US1¢ after rallying past US60¢ on Wednesday night.
There was further unease in Asia, where Japanese stocks fell 4.5 per cent –attributed to a request from Tokyo governor Yuriko Koike for the city’s residents to self-isolate at home on weekends. SoftBank shares also fell 9.4 per cent after it was downgraded two notches by Moody’s on Wednesday, based on its intention to sell assets to fund a buyback of its shares.
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