Global stocks lifted by signs of fledgling economic recovery
Global stocks resumed their march higher on Tuesday as investors took heart that better-than-expected surveys on business sentiment indicated companies were emerging from the worst of the global lockdowns.
Equity, bond and currency markets shrugged off early concerns that a planned trade deal between the US and China was in doubt. The S&P 500 index closed up 0.4 per cent and the tech-heavy Nasdaq Composite was 0.7 per cent higher, closing for a fresh all-time high.
The moves extended a rally that began in March, driven in part by central banks’ aggressive plans to stimulate the economy. The three months to June is set to be one of the best quarters for the S&P in 45 years, according to Bespoke Investment Group, a New York analysis company.
European stocks had their best day in a week, as the regional Stoxx 600 index rose 1.3 per cent. Germany’s Dax was the best performer, gaining 2.2 per cent.
Surveys of business executives in Europe’s three largest economies suggested they were markedly more upbeat in June than in the previous months.
So-called purchasing managers’ indices, surveys of business confidence, across Europe were better than forecasts but most businesses were reporting a contraction in activity compared to the previous month.
“PMI numbers provide further evidence of what initially looks like a textbook V-shaped recovery,” said Carsten Brzeski, chief eurozone economist at ING. However, he warned that the rally could be shortlived amid concerns about corporate debt levels and high unemployment.
The French, German and UK purchasing managers’ indices for June all rose more than economists had expected as restrictions on business activity continued to be lifted.
In Germany and the UK, the closely watched gauge of business activity remained in contraction at 45.8 and 47.6, but hit its highest level since the coronavirus pandemic began. France’s composite PMI indicated a return to growth in activity at 51.3.
For others the data were to be treated cautiously. “The question is whether any firm can seriously answer that things are worse in June than they were in May,” said Paul Donovan, chief economist at UBS Global Wealth Management. “If people answered this question in any way accurately, the indices would have several months of being near 100. The fact they are not doing that reflects the fact that nobody answers the surveys accurately.”
Investors’ enthusiasm was reflected in government bond prices. The yield on the US 10-year Treasury note rose 0.016 percentage points to 0.718 per cent and the 30-year “long bond” rose 0.032pp to 1.493 per cent as investors lost appetite for longer-dated debt. Bond yields go up when prices fall.
Investor optimism over the prospect of a global economic recovery has been challenged by a resurgence in Covid-19 cases in the US and China, as well as parts of Europe and the Americas.
The gains in Europe followed a volatile overnight session in Asia. Stocks swung sharply after President Donald Trump rebutted comments by his trade adviser that suggested the US could tear up its preliminary deal with China.
Markets initially fell after Peter Navarro, Mr Trump’s chief trade adviser, told the Fox News channel that the so-called phase one trade deal between the US and China was “over”. But Washington was quick to retract the comments. Shortly after Mr Navarro’s interview, Mr Trump wrote on Twitter that the trade agreement with China was “fully intact”. In a statement, Mr Navarro said he had “been taken wildly out of context” when talking to Fox News.
The dollar was weaker across the board as investor sentiment turned positive following initial concern over the US-China trade deal, and continued signs of a global economic recovery, which allowed riskier currencies to inch higher. The euro was trading 0.5 per cent stronger at $1.1320 while sterling bounced to $1.2513. The dollar also slipped against the Japanese yen, to trade at Y106.48.
“Decent gains have been driven by a recovery in services sentiment as economies opened up,” noted Bipan Rai, head of forex strategy at CIBC Capital Markets. “This buttresses the view that we’ve seen the bottom in economic activity in many countries.”
Tokyo’s Topix benchmark gained 0.5 per cent, while Hong Kong’s Hang Seng index climbed 1.6 per cent.
Crude oil prices marked time after closing above $40 a barrel for the first time since March. US crude oil benchmark West Texas Intermediate fell 1.3 per cent to $40.22 a barrel. Brent, the international benchmark, fell 1.5 per cent to $42.45.