Stocks gain as investors welcome call for European recovery fund

Markets boosted by hope of strong economic rebound

Japan’s Topix index climbed 1.8 per cent and Australia’s S&P/ASX 200 gained 1.8 per cent.

Japan’s Topix index climbed 1.8 per cent and Australia’s S&P/ASX 200 gained 1.8 per cent.

 

A broad rally in global markets pushed into a second day on Tuesday, as signs of a strong European fiscal response to the coronavirus pandemic added to hopes of a rebound in economic activity.

Stocks opened higher across Europe, with London’s FTSE 100 up 1 per cent and Germany’s Dax gaining 1.1 per cent.

Germany and France on Monday joined forces to push for a €500 billion EU recovery fund, boosting the effort to create a co-ordinated European fiscal response to the pandemic. The spreads between Italian, Spanish and Portuguese 10-year bond yields and their German equivalents tightened following the news.

“There is still opposition within the EU, and the scale is relatively small. Markets are focusing on the principle rather than the scale, however,” said Paul Donovan, chief economist at UBS Global Wealth Management.

Investors

Markets have shot higher this week as investors welcomed several developments that boosted hopes for a strong economic recovery once lockdown restrictions are lifted.

Most notably, biotech company Moderna on Monday said its potential Covid-19 vaccine had delivered positive results in early small-scale human trials. The news helped global markets record their best session since early April, as the European Stoxx 600 regional benchmark index rose 4.1 per cent, while the S&P 500 on Wall Street gained 3.2 per cent.

Future trade pointed to gains of 0.5 per cent for the S&P 500 when trading opens on Wall Street later on Tuesday.

Expectations for an economic rebound from the pandemic, in part due to robust support measures by major central banks, have helped drive a sharp rise in global stock markets over the past two months. The S&P 500 is up about a third from a low hit in late March.

“Equities are pricing in an optimistic path forward,” said strategists at ClearBridge Investments, noting that investors have started to focus on the potential path of the economic recovery.

The positive sentiment spilling over from Monday’s trading helped overshadow growing concerns over a deepening US-China rift, with Huawei emerging as a significant source of tension. In the latest development, the Chinese telecoms equipment maker has warned that new sanctions from Washington put its survival at stake.

Demand

In Asia-Pacific, Hong Kong’s benchmark Hang Seng index rose 2 per cent, while China’s CSI 300 index of Shanghai and Shenzhen-listed stocks added 0.9 per cent. Japan’s Topix index climbed 1.8 per cent and Australia’s S&P/ASX 200 gained 1.8 per cent.

Oil prices also built on a rally spurred by signs that crude demand was picking up and supply cuts led by Opec had begun to take effect.

West Texas Intermediate, the US marker, rose 3.8 per cent to $33 a barrel after jumping 8 per cent a day earlier and back above the $30 mark for the first time since mid-March. Brent crude, the international benchmark, rose 1.6 per cent to $35.36 a barrel. – Copyright The Financial Times Limited 2020