Global stocks and oil extend gains on economic recovery hopes

Via Financial Times

Global stocks and oil prices jumped as hopes for a swift global economic recovery from the coronavirus pandemic and further central bank support helped offset rising geopolitical risks.

European stocks recorded solid gains at the opening bell. The FTSE 100 was up 0.9 per cent, the London blue-chip index’s third straight day of gains, while the Dax and Cac 40 rose by similar margins.

Global stock markets have hit their highest levels since March this week, driven by green shoots of economic recovery and significant central bank support.

“Compared to market drawdowns in past recessions, the speed and scale of this rebound is unusual,” said Kerry Craig, global market strategist at JPMorgan. “The difference here is huge amounts of stimulus from governments and central banks.”

In a sign the rally in equity markets is broadening, stocks in Europe have outperformed Wall Street this week.

“Just as the winners of the last two months were running out of steam, along come the laggards to the party,” said Deutsche Bank strategist Jim Reid, noting that many expect the European Central Bank to announce an expansion of its stimulus programme on Thursday.

Markets in the Asia-Pacific region rose, with South Korea’s Kospi adding nearly 3 per cent after the government unveiled an additional $29bn stimulus programme to help support the economy.

That followed a strong showing on Wall Street, where the S&P 500 closed up 0.8 per cent at a three-month high. US stocks have forged higher despite mass protests in cities across the country after the police slaying of an unarmed African-American man and rising tensions between Beijing and Washington. Futures tied to the S&P 500 rose 0.4 per cent on Thursday.

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“Markets are in full liquidity-on mode” as investors look through headwinds including geopolitical tensions, strategists at HSBC said in a note.

“Instead, news flow around new stimulus packages and possible vaccine breakthroughs are greeted jubilantly. This might continue in the short term, but is hardly sustainable,” they added.

Brent crude climbed back above $40 for the first time in almost three months on optimism crude producers will extend output cuts.

Oil prices were buoyed by hopes that Opec+ nations would extend production cuts for another month. Brent, the international benchmark, rose 2 per cent to $40.35 a barrel. US marker West Texas Intermediate climbed 2.8 per cent to $37.83.

“The market was already set to transition from surplus to deficit as we move into the second half of this year, and so prices were set to strengthen over the remainder of the year,” said Warren Patterson, head of commodities strategy at ING. “Clearly, even deeper cuts will speed up the process of rebalancing the market.”

Elsewhere in Asia, China’s CSI 300 index of Shanghai and Shenzhen-listed stocks was broadly flat after the Caixin purchasing managers’ index showed that services sector activity rose for the first time in four months in May. New orders jumped at the fastest pace in a decade, indicating a robust recovery in certain parts of the world’s second-largest economy following its Covid-19 outbreak.

Signs that Australia is on course for its first technical recession in three decades damped a little of the recent enthusiasm for the Australian dollar, which gave up some of its earlier gains to fall back off a five-month high of $0.6983 against its US counterpart. Economists expect the pandemic will end the country’s run of 29 years without a recession, with Canberra forecasting the economy could contract by as much as 10 per cent in the second quarter.

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