Global stocks climbed on Tuesday, building on a rally that has been defying pessimists for two months.
The US S&P 500 rose above 3,000 for the first time since March, adding as much as 2.1 per cent in morning trading, as the easing of coronavirus lockdown measures across the world gave cautious grounds for optimism that the worst of the economic impact may have passed.
A switch into riskier assets was evident in Europe, where travel and leisure stocks led the gains after Germany and Spain moved to lift their travel restrictions. Asian markets also climbed, with speculation of new stimulus measures from China lifting the CSI 300 index of Shanghai- and Shenzhen-listed stocks by 1.1 per cent.
“The recession has likely ended,” said Exane BNP Paribas strategists in a research note. “Lockdowns are being gradually reversed across most countries. And high frequency measures of activity suggest that economic growth has bottomed.”
Investors are taking the view that reopening is almost equivalent to rebounding. Not so fast Max Kettner, HSBC strategist
Global markets were hit hard when coronavirus lockdowns started in late February and early March, but a wave of support from central banks and governments kindled a rally from March 23. The S&P 500 is up by 30 per cent in that time, while Germany’s Dax has reached its highest level since March 6, up by 40 per cent from its lows.
Fiscal stimulus “eventually flows back to corporate profits”, Exane said. “What also supports a sharper than usual recovery in earnings is that financial conditions have never been this easy during any of the recent recessions.”
Positive market sentiment comes as the daily death rate in the US from Covid-19 hovers at its lowest level in about two months, following declines in death rates in many other countries.
Ian Tomb, an analyst at Goldman Sachs, said it was encouraging that countries that were early to lift their lockdowns such as New Zealand had not seen a resurgence in cases so far.“With coronavirus concerns moderating, limited evidence so far that opening up has triggered fresh medical concerns, and the potential negative effects of lockdowns continuing to accrue, markets have tentatively started to take a more positive view of reopening,” he said.
Investors are showing a greater willingness to move away from haven asset classes and into riskier territory, denting the US dollar in the process. The dollar weakened against most of its peers on Tuesday, with the Australian dollar gaining 1.4 per cent to its strongest point since March 6.
“The [US] dollar has become such a bellwether for risk sentiment in this crisis and with even the [Hong Kong stock market] bouncing, long positions in the dollar have capitulated,” said Kit Juckes, a macro strategist at Société Générale.
However, some economists warn that lower consumption in the US and a slowing recovery in China give reason to doubt that rallies in riskier assets can be sustained.
“It seems that investors are taking the view that reopening is almost equivalent to rebounding. Not so fast,” said Max Kettner, strategist at HSBC. “That leaves us with the possibility of markets continuing to trade in a rather volatile sideways range.”
Boris Johnson, the UK prime minister, indicated on Monday that the country’s economy will open further — if the spread of the virus is contained — with all non-essential retailers able to trade on June 15.
That helped sterling strengthen against the US dollar, rising more than 1 per cent to $1.2311 — its highest level in almost two weeks.
Economic activity in the UK for the week starting May 11 returned to almost 80 per cent of normality, driven by higher retail sales both online and offline, according to analysts at Barclays.
Frankfurt’s Xetra Dax pushed 0.8 per cent higher after a slight recovery in the GfK German consumer confidence indicator for June and signs of recovering business confidence in data released on Monday. The continent-wide Stoxx Europe 600 gained 0.9 per cent.
Travel companies led gains in Europe with Tui, easyJet, InterContinental Hotels Group and British Airways owner IAG all jumping more than 10 per cent. Germany will vote this week on whether to relax travel restrictions by mid June while Spain said on Saturday it would be open for foreign holidaymakers from July.
Japan’s Topix index added 2.2 per cent after Asia’s second-largest economy lifted a nationwide state of emergency aimed at curbing the spread of Covid-19.
Last week’s oil rally continued, with Brent crude, the international benchmark, up 1.8 per cent at about $36 a barrel. West Texas Intermediate, the US marker, climbed 2.7 per cent to just above $34 a barrel.
