Global stocks extend gains on growing hopes of economic recovery

Global stocks took their cue from a Wall Street rally that erased overnight all losses for the year, buoyed by hopes of economic recovery from the coronavirus pandemic and further central bank support.

In Asia, Hong Kong’s Hang Seng climbed 1.8 per cent to put the benchmark on track for a sixth day of gains. Australia’s S&P/ASX 200 rose 2.5 per cent as traders returned from Monday’s public holiday while China’s CSI 300 index of Shanghai and Shenzhen-listed stocks edged up 0.6 per cent.

European stocks were more muted as the Stoxx 600 opened 0.2 per cent higher on Tuesday. The composite index of the biggest European companies is up 10 per cent over the past month but still about 10 per cent down this year. The FTSE 100 opened 0.2 per cent lower.

“In the second half of this year, we expect markets to continue pricing in a combination of falling virus cases, rising PMIs, and continuing fiscal injections — this time with no early austerity — while central banks buy the equivalent of new issuance (and probably more) for longer,” said analysts at Société Générale. 

Trade data for April showed German exports contracted at the fastest pace since records began in 1950 while Europe’s five largest economies have published gloomy predictions for the year, with Germany expected to recover the quickest.

Overnight, Wall Street’s S&P 500 closed up 1.2 per cent, bringing its gains over the past month to 10.3 per cent and within 5 per cent of its all-time high, on investor optimism that US economic activity is rebounding as Covid-19 lockdowns are being eased.

However, futures markets tipped US equities to pull back 0.2 per cent when trading in the S&P 500 kicks off on Tuesday.

US stocks have climbed more than 40 per cent from their mid-March low, bringing the S&P 500 into positive territory for the year. Investors have brushed off a recession induced by lockdowns to contain the spread of the coronavirus and widespread civil unrest following the killing of George Floyd.

“The good news is that this shows central banks’ effort to stabilise the market have worked,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management, of the rally in US stocks.

But he added that global economic activity was “far from where we were before the pandemic”. A host of threats also loom over the recovery, he said, in the form of another wave of infections, US-China trade tensions and the ripple effects of rising unemployment and corporate bankruptcies.

Elsewhere in Asia, Japan’s Topix slipped 0.3 per cent. Official data on Tuesday showed that wages in the world’s third-biggest economy fell in April as a result of efforts to contain the spread of Covid-19.

The yield on 10-year US Treasuries, viewed by investors as a haven, fell 0.04 percentage points to 0.844 per cent.

Oil prices rose following a sell-off on Monday that was prompted by Saudi Arabia’s admission that the extension of Opec+ production cuts until the end of July would not include voluntary curbs by a trio of Gulf producers.

Brent crude, the international benchmark, added 0.5 per cent to $40.97 a barrel while West Texas Intermediate, the US marker, rose 0.7 per cent to $38.46.

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