Global stocks lifted by signs of fledgling economic recovery

Global stocks pushed higher on Tuesday as signs of a recovery in business activity in Europe raised investors’ hopes for a rapid economic rebound.
On Wall Street, the S&P 500 and Nasdaq each rose 0.8 per cent in early trading. European stocks were on course for their best day in a week, as the regional Stoxx 600 index and London’s FTSE 100 both added 1.2 per cent. Germany’s Dax was the best performer, gaining 2.4 per cent.

Surveys of business executives in Europe’s three largest economies suggested they were markedly more upbeat in June than in the previous months.

“PMI numbers provide further evidence of what initially looks like a textbook V-shaped recovery,” said Carsten Brzeski, chief eurozone economist at ING. However, he warned that the rally could be shortlived amid concerns about corporate debt levels and high unemployment.

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The French, German and UK purchasing managers’ indices for June all rose more than economists had expected as restrictions on activity continued to be lifted. In Germany and the UK, the closely watched gauge of business activity remained in contraction at 45.8 and 47.6, but hit its highest level since the coronavirus pandemic began. France’s composite PMI indicated a return to growth in activity at 51.3. Overall figures for the eurozone also beat forecasts at 47.5.
The improvement in the UK’s PMI reading “was much stronger than expected” and taken with positive retail sales data last week, suggest “the initial rebound in activity as restrictions are eased is likely to be quite strong”, said Cathal Kennedy, an economist at RBC Capital Markets.

Ahead of the release, analysts at Deutsche Bank urged caution in interpreting PMIs as the regional economy recovers from very low levels of activity during lockdowns. The data “can prove rather volatile when you have the sort of economic dislocation we’ve seen since the shutdowns”, they said.

The gains in Europe followed a volatile overnight session. Stocks swung sharply after President Donald Trump rebutted comments by his trade adviser that suggested the US could tear up its preliminary deal with China.

Markets initially fell after Peter Navarro, Mr Trump’s chief trade adviser, told Fox News that the so-called phase one trade deal between the US and China was “over”. But Washington was quick to retract the comments. Shortly after Mr Navarro’s interview, Mr Trump wrote on Twitter that the trade agreement with China was “fully intact”. In a statement, Mr Navarro said he had “been taken wildly out of context” when talking to Fox News.

The prospect of increased friction between the world’s top two economies at one juncture prompted S&P 500 stock futures to drop 1.3 per cent.
Tokyo’s Topix benchmark gained 0.5 per cent, while Hong Kong’s Hang Seng index climbed 1.6 per cent.

Investor optimism over the prospect of a global economic recovery has been challenged by a resurgence in Covid-19 cases in the US and China, as well as parts of Europe and the Americas.

Germany on Tuesday reimposed a localised lockdown following an outbreak of coronavirus at a meat processing factory in the western city of Gütersloh.
The US on Monday reported more than 25,000 new cases for the fifth straight day, with Arizona, California, Florida, Georgia and Texas among the hotspots. Investors have also had to contend with a rise in infections in Germany.

However, Larry Kudlow, the White House’s top economic adviser, insisted on Monday that the US would not suffer a “second wave” of the pandemic, and dismissed rising case counts as “just hotspots”.

The yields on US government bonds gained as investors moved out of the debt, in a sign of rising confidence in the bond market. The yield on the US 10-year Treasury, which moves in the opposite direction to prices, rose 0.013 percentage points to 0.7168.

Oil prices were flat, with Brent crude at $43 a barrel.