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Stock Markets in Asia Climb After U.S. Rally: Live Updates

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Stock markets in Asia rose cautiously on Friday, after investors in the United States sent stocks more than 6 percent higher on optimism over the impact of a big spending package from Washington.

Most of the region’s markets were up by more than 1 percent at midday in Asia, including major indexes in Tokyo, Hong Kong and Shanghai. Only Australia and New Zealand bucked the positive trend in the Asia-Pacific region, with those markets down about 2 percent late in their trading day.

Other markets signaled persistent unease. Trading in longer-term U.S. Treasury bonds, a traditional safe place to park money in times of trouble, was mixed in Asian trading on Friday. Oil prices, another indicator of attitudes toward the economy, were modestly higher in futures trading.

It was not clear how long Wall Street’s cheer would last. Futures markets were predicting that stocks in the United States and Europe would open lower.

Wall Street has been in rally mode, as investors bid up shares of companies that were set to receive support from Washington’s $2 trillion coronavirus aid bill.

With the package advancing through the Senate, the gains continued on Thursday. The S&P 500 climbed 6.2 percent, even after the government reported a staggering jump in unemployment claims by workers.

As it has been all week, investors’ focus was on companies likely to get help from the spending plan that passed the Senate on Wednesday night. The House of Representatives and President Trump are expected to approve it.

Boeing rose nearly 14 percent on Thursday because the package specifically sets aside $17 billion for “businesses critical to maintaining national security” — language that was seen as intended at least partly for the aircraft manufacturer and key Pentagon contractor.

Other companies that were hit hard in the early days of the coronavirus outbreak continued to soar. American Airlines and Delta Air Lines rose nearly 2 percent. Carnival Corporation was up about 14 percent.

But the economic crisis is perhaps the most daunting since World War II. On Thursday, a government report showed a record rise in weekly applications for unemployment benefits, which jumped to nearly 3.3 million from 282,000 in a week.

The legislation sets up a $150 billion relief fund for states and local governments, offers tens of billions more for running local infrastructure like mass transit systems and airports and expands the Federal Reserve’s authority to buy municipal bonds.

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The fund is smaller than the $282 billion that states and cities received under the American Recovery and Reinvestment Act of 2009, and it has tighter limits on what it will pay for. “We do not believe there is much flexibility,” said Tom Kozlik, head of municipal strategy and credit at Hilltop Securities, an investment firm in Dallas. “It can only be spent on activities that are directly related to Covid-19.”

THE DETAILS The relief fund would make at least $1.25 billion available to each state, with amounts adjusted upward according to population. Money will also be available to the District of Columbia, territories like Puerto Rico and tribal governments.

Additional amounts will be available to school districts and higher educational institutions, airports and mass transit systems and urban housing programs. The Federal Reserve is authorized to buy up to $454 billion of debt securities — municipal bonds as well as corporate securities.

THE CONTEXT The Federal Reserve’s new bond-buying program is intended mainly to keep the markets running smoothly on bonds that have already been issued. Earlier this month, there was a rout when mutual funds had to sell municipal bonds to raise cash when herds of investors started stampeding to redeem their shares. The supply of municipal bonds exceeded market demand, and the Fed stepped in to balance things out. The legislation expands the amounts and types of debt the Fed can buy to keep that from happening again.

In addition to municipal bonds on the market, the Fed would also be able to buy new bonds as they are issued by governments. Until just weeks ago, states and local governments were not issuing much new debt. But now that the pandemic has prompted governments to delay their income-tax deadlines, some states may have to issue short-term debt just to tide themselves through until the tax revenue starts arriving, probably in summer.

With the Federal Reserve’s help, the government plans to turn a $454 billion spending package working its way through Congress into more than $4 trillion booster shot for the United States economy.

How, you might ask, does that add up?

The answer lies in the central bank’s emergency lending authorities, given to it by the Federal Reserve Act. When the Fed declares that circumstances are unusual and exigent, and Treasury Secretary Steven Mnuchin signs off, it can set up special programs that essentially buy debt from — or extend loans to — businesses large and small.

The Fed could simply print the money to back that lending, but it avoids taking on credit risk, so it asks for Treasury funding to insure against losses. But those taxpayer dollars can be leveraged: Because the Fed expects most borrowers to pay back, it does not need one-for-one support. As a result, a mere $10 billion from Treasury can prop up $100 billion in Fed lending. And voilà — the money Congress dedicates to Fed programs can be multiplied many times.

Reporting was contributed by Mary Williams Walsh, Carlos Tejada and Daniel Victor.



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