Growing optimism about the global economic recovery pushed equity markets even higher yesterday as investors took heart from a further easing of lockdowns and looked past China-US tensions and civil unrest across America.
The upbeat mood – and hopes for an extension to a massive crude output cut agreement – helped oil markets continue their rally, with Brent breaking the $40 mark for the first time in three months.
While coronavirus deaths and infections surge in Latin America, governments in Europe and Asia have become confident enough to lift containment measures that have likely sunk the world economy into recession and destroyed tens of millions of jobs.
Cafes, bars, pools, beaches and schools are cautiously reopening, fanning hopes the second half of the year will see a sharp economic rebound, which – combined with trillions of dollars in stimulus and central bank support – have fed an equity rally.
“If I look at the markets, I see a V-shaped recovery,” Mark Mobius, co-founder of Mobius Capital Partners, told Bloomberg TV. “That’s what the markets are telling us.”
Tokyo jumped 1.3% to 22,613.76 and Hong Kong was up 1.4% to 24,325.62, while Sydney put on 1.8% after data showed the Australian economy contracted at a slower rate than feared in the first quarter – though it is still on course for its first recession in nearly 30 years.
Seoul surged 2.9% as South Korea’s government unveiled a supplementary budget worth $29bn, while Singapore was also up more than 2%.
Mumbai, Taipei and Jakarta were also more than 1% higher, while Shanghai added 0.1%, Wellington climbed 0.8% and Manila soared 3.7%.
“The lifting of lockdown restrictions combined with enormous central bank support means investors are shrugging off little things like collapsing GDP and worsening US-China tension,” said Neil Wilson at Markets.com.
The gains tracked a rally across European markets and Wall Street, where dealers – for now – are looking past anti-racism protests in major US cities that have led Donald Trump to call for the military to be deployed.
“For now the good virus news...(is) more than outweighing the bad,” said National Australia Bank.
However, it warned that there remained a lot of risk that could spark a massive sell-off.
“On this score it is worth noting that southern US states are still showing a steady increase in infections, Hong Kong extended virus-prevention measures after a new cluster of cases and Tokyo’s infections have also spiked,” the commentary said.
“If these trends continue we could see the re-introduction of more severe restrictions.”
World Bank head David Malpass was also concerned about the outlook, saying estimates that anti-virus measures would wipe out $5tn are likely to fall far short of the actual damage. Oil prices added to gains on hopes that major producers will meet to extend their output cuts by one month to August, while investors were also cheered by signs of a further drop in US stockpiles indicating demand is improving.
“The most bullish outcome for oil from the meeting is no sign of squabbling between Russia and Saudi Arabia,” whose price war earlier this year helped send prices crashing, said Stephen Innes of AxiCorp. “Headlines suggest they are on the same page on supply, and that’s bullish for oil in the context of an improving demand backdrop.”
The long-running advance in crude is also providing support to energy-linked currencies, with the Australian dollar up more than 1%, while other higher-yielding, riskier units were also enjoying buying.
South Korea’s won and the New Zealand dollar were all well up.
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