Stocks rallied globally on Tuesday after the US Federal Reserve said it would step up its efforts to backstop the US corporate debt market, calming global markets.
The move, which will see it purchase a “broad, diversified market index” of corporate bonds in the secondary market, also came after the central bank launched its long-awaited Main Street lending programme.
Investors hope that the lending programme, which will offer up to $600bn (£478bn) in loans to US businesses with up to 15,000 employees or with revenues up to $5bn, will bolster the US economy as it contends with the coronavirus pandemic.
The pan-European STOXX 600 index (^STOXX) rose by around 3.4%, while London’s FTSE 100 (^FTSE) was up by around 3.5% even after data showed that UK employers have slashed more than 600,000 staff jobs since March.
“The Fed is stepping things up after its statement last week left investors more than a little concerned about the pace of recovery,” said Neil Wilson, chief markets analyst at Markets.com
“The move suggests that the Fed, as was clear last week, is worried about the economy enduring a protracted downturn,” he said.
Fed chair Jerome Powell will also on Tuesday begin a series of hearings before US lawmakers. Analysts expect the central bank chief to urge them to pass a second major fiscal stimulus package, such as the Trump infrastructure plan.
“The Federal Reserve took a downbeat assessment of growth over the last two meetings in large part to pressure the White House and Congress into a second necessary fiscal package,” said Sebastian Galy, a senior macro strategist at Nordea Asset Management.
“The Fed Chairman at his semi-annual report to Congress is likely to pile on the pressure,” he said.
In its best day since March, Japan’s Nikkei (^N225) closed almost 4.9% in the green after the country’s central bank said it “will not hesitate” to take further action to combat the economic effects of the crisis.