US equities rise as economic stimulus overshadows unrest

Gunmakers extend rallies after Trump’s promise to deploy large numbers of troops

US equities rose alongside stocks in Europe and Asia as new bouts of stimulus and positive economic signals overshadowed social unrest in America. The dollar fell for a fourth straight day.

Banks led early gains on the S&P 500 Index. Gunmakers extended their rallies in the wake of US president Donald Trump’s promise to deploy large numbers of troops if cities and states don’t act to contain violence from protests over police brutality.

Stimulus hopes powered Europe’s Stoxx 600 to a 12-week high as Chancellor Angela Merkel sought to thrash out a second aid package for Germany. Oil gained as investors eyed a potential extension of record production curbs by OPEC+.

Treasuries edged lower, while the pound jumped on positive news in trade negotiations between Britain and the EU.

Investors have driven stocks toward the highest in three months as businesses reopen around the world and manufacturing gauges show economies stabilizing following coronavirus shutdowns.

That's despite a slew of risks still on the horizon, including tense US-China relations that may jeopardize a hard-won trade deal.

The sometimes violent demonstrations across US cities over the killing by police of George Floyd, an unarmed black man, aren't yet seen as a major drag on the economy and corporate profits.

"The main focus once again appears on the longer-term prospects of the easing of lockdowns across the world," said Michael Hewson, an analyst at CMC Markets.

Elsewhere, emerging-market stocks rallied alongside currencies. Australia’s dollar rose to its highest level since January. In Asia, Tokyo equity benchmarks outperformed.

The euro hit a two-and-a-half-month high too as the dollar struggled with its home-grown strains, and Italian and Spanish bonds were still being helped by a proposed €750 billion EU stimulus plan and European Central Bank buying.

"In a way, it is remarkable that the market remains in this positive mood," said Elwin de Groot, head of macro strategy at Rabobank. "Even with these rising protests in the US and the situation in Hong Kong at the moment, the market is pushing on and seeing room for optimism."

Demonstrators, angered over the recent death of 46-year old African American George Floyd in police custody, had set fire to a mall in Los Angeles overnight, looted stores in New York and at least five US police had been hit by gunfire.

Wall Street futures had dipped in Asia but Europe dragged them back up in its slipstream ahead of US trading.

World stock markets have rallied nearly 36 per cent from March lows on hopes for a swift recovery from the coronavirus-induced collapse in world growth. The tech-heavy Nasdaq is now only 3 per cent from its pre-virus record highs.

May Purchasing Managers Index data pointed to a fragile but encouraging recovery in global manufacturing, raising hopes that the worst is over.

In Asia, Japan's Nikkei rose 1.2 per cent to its highest since late February and markets in Seoul, Taipei, Hong Kong and China also gained as the central bank there also provided another shot of stimulus.

"This optimistic read for risk can only persist if measures like orders and employment continue to improve month to month," said Alan Ruskin, chief international strategist at Deutsche Bank.

“Early setbacks would be a very poor sign, but are not expected in the period immediately following the end of lockdowns.”

The dollar was at multi-month lows against most major currencies following a 5 per cent drop for its main index since March.

The euro got as high as $1.1160, Britain’s pound topped $1.2530 for the first time in over a month and the Canadian and Australian dollars both rose around 0.4 per cent as commodity markets continued their recoveries.

“The protests are part of the reason for the sell-off in the dollar over the last four or five days,” said CMC Markets senior analyst Michael Hewson.

“When there are riots on the streets and the president is saying the military will be called in, it adds some near-term uncertainty.”

Brent oil rose another 2 per cent to just over $39 a barrel. Traders are expecting major producers to extend output cuts at an OPEC+ meeting later in the week. US crude was up 1 per cent at $35.86 a barrel.