Global stocks rally on hopes for economic improvement

Marco Green
June 16, 2020

German .GDAXI and Italian .FTMIB shares outperformed their European peers, with cyclical sectors including travel .SXTP , construction .SXOP , banks .SX7P and autos .SXAP gaining between 3.0% and 4.3%.

Gov. Haruhiko Kuroda told reporters that recovery could come in the latter part of the year if the effects of the pandemic are mitigated.

"If so, equities and risk-linked currencies are likely to continue their journey north, as investors keep diverting their capital out of safe havens, the likes of the USA dollar, the yen and the franc", said Charalambos Pissouros, senior market analyst at JFD Group.

Flexibility in thinking was key because of the uncertainties about the virus, he added.

The Fed provided more details of its anticipated programme to buy investment grade United States corporate bonds in the secondary market from Tuesday, reinforcing hopes that authorities would continue to flood the market with liquidity. Central banks have repeatedly come to the economy's rescue over the years, and it was huge, unprecedented moves by the Fed earlier this year that helped put a halt to the S&P 500's almost 34% sell-off on worries about the recession coming out of the coronavirus pandemic.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.2 percent, its biggest one-day gain since June 1.

The Dow Jones Industrial Average gained 157.62 points, or 0.6%, to 25,763.16.

The Nasdaq composite added 137.21 points, or 1.4%, to 9.726.02. "Nobody in the financial industry has a good way to forecast this".

But surging new cases of COVID-19 in China, where the pandemic originated, prompted the reintroduction of containment measures, and record hospitalizations in several US states dampened investor risk appetite. Even if that doesn't happen, rolling waves of outbreaks could frighten businesses and consumers enough to keep them from spending and investing, which would itself hinder the economy.

Just a week ago, investors seemed ebullient with expectations for a recovery. Data showing an uptick in jobs through May further cemented these hopes.

Talk that USA firms may be allowed to work with China's Huawei on new 5G standards eased trade jitters, and a report of a new $1 trillion US infrastructure programme also boosted markets. US Treasury yields rose as investors sold bonds.

US crude was trading up 1.2% at $37.58 a barrel, after falling 1.2%, and Brent crude also rose 1.5% to $40.34 per barrel.

Last week, the central bank provided its first pandemic era outlook, and market participants will be closely following Fed Chair Jerome Powell's testimony this week before Congress for details on the central bank's somber economic projections. Futures for Brent, the global oil benchmark, also reversed course and rose 0.1% to $39.76 per barrel.

The yen was little changed at 107.33 per dollar.

The euro was flat at $1.1316 EUR=EBS , recovering from falls a couple of days back after traders feared a second wave of coronavirus and made a decision to cash in on any gains.

Other reports by Click Lancashire

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