Markets

US stocks climb after huge rally in Chinese shares

Among the reasons investors cited for the buying was improving economic data

Traders work during the closing bell at the New York Stock Exchange on Wall Street in New York City.

Mon Jul 6 2020 - 15:03

US stocks climbed as a huge rally in Chinese shares pushed a global equity benchmark toward a one-month high. The dollar fell for a fifth day and Treasuries dipped.

Automakers and banks jumped as the S&P 500 Index headed toward its fifth-straight increase. Uber Technologies surged after the company agreed to buy Postmates in a $2.65 billion all-stock deal.

The Stoxx Europe 600 Index climbed more than 1 per cent. Copper was on the cusp of erasing this year’s losses after virus-related disruptions tightened supplies.

Global stock markets started the week in an upbeat mood after a front-page editorial in China’s Securities Times on Monday said that fostering a “healthy” bull market after the pandemic is now more important to the economy than ever.

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The Shanghai Composite Index posted its biggest advance since 2015, fuelling bullish spirits around the world, even as investors kept a wary eye on the coronavirus infections sweeping parts of the US.

Alicia Levine, chief strategist at BNY Mellon Investment Management, said she’s telling clients to stay in the market amid stimulus measures from the Federal Reserve and US government.

“That is still our message,” Levine said in an interview on Bloomberg TV and Radio. “It’s extraordinary. I think we’re all scratching our heads, but the market is telling me you’ve got to be in it.”

The MSCI World Index is now at the highest level since early June, with investors putting their faith in an economic recovery powered by historic government stimulus. The Nasdaq Composite Index set an intraday record.

But of course there’s a long way to go before the economy gets back to normal.

Goldman Sachs Group cut estimates for US growth this quarter and said consumer spending appears likely to stall this month and next.

Still, economists led by Jan Hatzius said other economies have proved it’s possible to resume activity and changes in behaviour such as wearing masks will help too.

Elsewhere, emerging market stocks reached their highest in more than four months, extending gains into a fifth session as strong economic data spurred bets on a swift economic recovery, with China’s yuan touching a 3 month peak.

The MSCI’s index of developing-world stocks rose 1.8 per cent to its highest since February 26th, with Chinese stocks the biggest boost to the index as the country’s business activity recovered steadily.

The onshore yuan finished trade at 7.0330 per dollar, its strongest close since March 18th.

Russian stocks led gains among markets in Europe, the Middle East and Africa, on strength in its energy sector. Rising oil prices have helped Russian exporters, as well as the rouble.

“With an unprecedented amount of cash in the system, equities and high-yielding bonds are attracting a lot of interest from investors in the absence of acceptable yield from money markets and longer-term government bonds,” Hussein Sayed, chief market strategist at FXTM, wrote in a note.

“To keep this rally alive, we need more intervention from fiscal and monetary policymakers and for investors to believe that policies will be generous enough to provide further liquidity.”

Most other emerging-market currencies have diverged from equities over the course of the pandemic, with monetary stimulus measures also hurting returns from FX and fixed income.

Equities have been quicker to recover from the rout thanks to increased cash in the market, leaving currencies in a trough.

This was reflected in the day’s movement, with most emerging- market currencies gaining little support from the increased risk appetite.

Russia’s rouble sank about 0.9 per cent to the dollar due to local dollar demand, as well as the threat of possible British sanctions.

Turkish stocks added about 1.7 per cent, while the lira was flat to the dollar. The currency is likely to face more selling pressure as Turkey struggles to rein in higher inflation bought about by the coronavirus outbreak.

Turkey’s central bank had held rates last month, citing upward price pressures caused by the pandemic.

Central European stocks rose while the Hungarian forint and Polish zloty were in a flat-to-low range against the euro. – Bloomberg / Reuters

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