Stocks turn higher with investor focus on pace of recovery

Stock markets turned higher on Wednesday, as investors put aside doubts over a potential Covid-19 vaccine and focused instead on signs of a global economic recovery.

European equities reversed early losses to trade higher by the early afternoon, with the FTSE 100 in London and regional benchmark Stoxx 600 index both rising 0.2 per cent. 

On Wall Street, futures trade pointed to gains of more than 1 per cent for the S&P 500, which would erase Tuesday’s late losses caused by doubts over the prospects for a Covid-19 vaccine. 

Equities markets around the world had rallied on Monday, bolstered by a positive outcome in an early-stage trial of Moderna’s Covid-19 vaccine. But an article published the following day on the closely followed medical news website Stat called into question the rigour of the study, prompting fresh doubts over the speed at which a vaccine could be developed.

After a surge higher in April helped recoup some of the first quarter’s losses, global stocks have been virtually flat in May. MSCI’s broad index of global stocks is up just 0.3 per cent on the month.

A measure of calm has returned to markets as investors grapple with a series of unknowns — from the prospects for economic recovery to the likelihood of a new wave of infections as countries lift restrictive lockdowns.

Analysts remain cautious over whether the easing of lockdowns will derail the success many governments have had in lowering coronavirus infection rates. The reproduction or R number remains below one — seen as the key threshold — in many big economies, such as the UK, Germany, France, Spain and Italy, according to figures collated by JPMorgan.

The Wall Street bank, however, warned in a note to clients on Wednesday that “at the moment, nowhere in Europe has the resources to do the kind of widespread testing that is needed” to track and trace new coronavirus cases effectively enough to staunch a second wave.

“This suggests that if exit strategies continue to be aimed at preventing a second wave of infection — by keeping R below one — restrictive social distancing measures will need to remain in place for an extended period,” JPMorgan said. “The easing in lockdown measures that we are now seeing risks a second wave of infection.”

Asian stocks were mixed. Japan’s Topix index rose 0.6 per cent on Wednesday, while Australia’s S&P/ASX 200 rose 0.4 per cent. Hong Kong’s Hang Seng rose 0.1 per cent and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.5 per cent.

The rise in Japanese shares came after data showed that core machinery orders — viewed as an indicator of capital spending in the coming months — fell less than analysts expected in April.

Oil prices were stable, as energy consultancy Wood Mackenzie estimated that national oil companies would cut exploration budgets by more than a quarter on average in 2020.

“Exploration budget cuts, while necessary today, will impact companies’ future growth and sustainability,” said Huong Tra Ho, analyst at Wood Mackenzie. “We expect [companies] to revitalise their exploration programmes as the sector recovers.”

Brent crude, the international benchmark, was up 1.5 per cent at $35.20 a barrel while West Texas Intermediate, the US marker, rose 0.7 per cent at $32.20 a barrel.

The yield on US government bonds slipped slightly, as investors moved into the debt. The 10-year yield fell 0.018 percentage points to below 0.70 per cent.

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