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Asia: Equities fluctuate after vaccine rally, eyes on Capitol Hill

[HONG KONG] Asian investors traded cautiously on Wednesday after the previous day's strong rally, with optimism over a possible vaccine tempered by profit-taking and concerns about the slow progress being made by US lawmakers in drafting a new stimulus package.

News that trials on a Covid-19 vaccine had shown early promise provided a much-needed boost to equities, particularly as a spike in new infections around the world has caused governments to reimpose business-strangling containment measurements.

But with the European Union finally locking in their US$860 billion deal on Tuesday, attention turns to Washington, where Republicans are struggling to put together a new bill to support the world's top economy, with the US$3 trillion of measures passed earlier this year about to dry up at the end of the month.

The wall of government cash and central bank back-stop, along with similar measures in other countries, have helped fire a surge in equities across the planet since they hit their March depths.

However, while Democrats have drawn up a new US$3.5-trillion plan, Republicans and officials in the White House are bogged down trying to draw up their own stimulus, which is said to be around US$1 trillion.

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Among the sticking points are the extension of a supplement to unemployment benefits and Donald Trump's desire for tax cuts, and with Congress due to take a break in August there is a concern a deal will not be agreed, leaving millions without cash.

Still Mr Trump said he was optimistic, telling a White House briefing: "We're working very hard on it, we're making a lot of progress.

"I also know that both sides want to get it done."

With one eye on developments on Capitol Hill, Asian equities were moving in and out of positive territory.


Hong Kong added 0.1 per cent after rising more than two percent on Tuesday, while Shanghai rose 0.7 per cent and Seoul edged up 0.3 per cent.

Taipei, Jakarta and Wellington were also up but Tokyo slipped by the break while Sydney fell more than one per cent the day after chalking up a gain of more than two per cent.

But Morgan Stanley strategist Andrew Sheets said stocks would have trouble pushing on with their rally.

"I'm more concerned going into the August, September period: what's going to then be the next catalyst to take the broader market higher?" he told Bloomberg TV, adding it was going to be "a tougher period for stocks".

The euro extended gains against the dollar following the EU agreement and was sitting at its highest levels since early 2019, while the Federal Reserve's ultra-low interest rates continue to help higher-yielding currencies including the Australian dollar, Indonesian rupiah and South Korean won.

Expectations that rates will remain low for some time, and ongoing uncertainty over the spread of Covid-19, have also led traders into gold, which is considered a hedge against turmoil.

The yellow metal was sitting at US$1,860 an ounce Wednesday and is approaching its record high above US$1,900.

The rally in gold, which is up almost a quarter this year, has helped drive silver to a seven-year high of US$22.84 per ounce.

"Silver is surging, and we think it is likely to remain strong," James Steel, chief precious metals analyst at HSBC Securities (USA), said.

"Some investors who may not have participated fully in the gold rally could find silver attractive. We believe this is happening and may sustain silver at higher prices still."


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