Wall Street trims gains after antiviral drug disappointment

Wall Street pared gains after a potential antiviral drug for coronavirus disappointed in its first randomised clinical trial.

The S&P 500 was up 0.4 per cent in afternoon trading in New York, having jumped as much as 1.6 per cent earlier despite another 4.4m Americans filing for first-time unemployment benefits last week.

Remdesivir, a drug developed by California-based Gilead Sciences, did not improve patients’ condition, according to draft documents published accidentally by the World Health Organisation and seen by the Financial Times. Gilead warned that the draft included “inappropriate characterisations of the study”.

The news briefly sent the benchmark S&P 500 into negative territory. Shares in Gilead were down as much as 7 per cent.

Since the market nadir in late March, investors have been looking past mounting unemployment in the US to the prospects for a gradual reopening of the economy. 

The latest claims figures were broadly in line with expectations. More than 26m Americans have now filed for jobless claims since the outbreak began in mid-March.

“In spite of week five of employment Armageddon, markets continue to look beyond the economic damage that is being incurred,” said Ronald Temple, head of US equity at Lazard Asset Management. “Monetary and fiscal stimulus have put a floor under the economy. However, the unprecedented disruption to business and household finances inflicted by Covid-19 will leave lasting scars even after testing, therapeutics and a vaccine are widely available.”

Wall Street was buoyed by a rally in oil prices, which rebounded from multi-decade lows as renewed tensions in the Middle East and optimism over supply cuts offered some respite to a market battered by a collapse in crude demand due to coronavirus.

The energy sector was the leading performer in the S&P 500 on Thursday, pushing its gains over the past two sessions to 8 per cent.

Oil plunged to record lows in recent days on concerns that there is not enough global capacity to store the growing supply glut. Prices for the US benchmark turned negative for the first time on Monday, meaning producers were forced to pay buyers to take oil off their hands.

As trading reached midday in New York on Thursday, Brent crude built on the previous session’s gains, adding more than 6 per cent to $21.76 a barrel. That left the international benchmark $6 off its lows of the previous day, when it hit its weakest level since 1999. US marker West Texas Intermediate rose 23 per cent to $17.01 a barrel.

Analysts attributed the rise in part to Donald Trump readying US warships to attack any Iranian vessels in the Gulf if they posed a threat. The US president said in a tweet on Wednesday that he had “instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea”.

But with the market heavily oversupplied, Brent crude remains 20 per cent down this week and well off highs of $60 a barrel at the beginning of the year. Analysts warned that any lift in prices triggered by the president’s sabre-rattling could be shortlived.

“The idea of tensions in the Gulf sustainably pushing up prices is a little difficult to grasp at this stage,” said Paul Donovan, chief economist at UBS Global Wealth Management.

“In a world awash with oil and with global supply significantly exceeding global demand, President Trump’s aggressive attitude is not likely to change the fundamentals of the oil market in the near term.”

Crude output has remained robust despite a collapse in global demand of up to a third, which has left the market massively oversupplied and storage facilities on the brink of capacity.

There is, however, optimism that forthcoming production curbs will help to ease the oversupply. A record output cut of 9.7m barrels a day, or roughly 10 per cent of global supply, by Opec and its allies is set to take effect from May 1 — though market participants worry this is not enough to offset the collapse in consumption.

Analysts at JBC Energy said the latest gains in the oil price suggested the market anticipated further reductions could be on the way. But as global lockdowns suppress demand and inventories swell, there is growing pressure on producers to do more. Storage at the key US delivery point at Cushing, Oklahoma is just weeks away from filling up.

European stocks climbed higher, with the continent-wide Stoxx 600 index closing up 0.9 per cent, while London’s FTSE 100 and Frankfurt’s Dax each rose 1 per cent.

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