AFP-Moves to ease lockdown measures and reopen economies around the world fired equity markets Friday as investors looked past a string of depressing data suggesting the planet is heading for its worst downturn since the Great Depression.
Some of the world’s biggest economies are in contraction, factory production has collapsed, hundreds of millions of jobs have been destroyed and numerous companies have gone to the wall since the pandemic struck earlier in the year.
And some observers are warning of more pain to come.
But traders remain buoyed, as mind-boggling stimulus and central bank backstopping measures along with easing China US-tensions have provided much-needed reassurance.
That combined with signs of a slowdown in the disease in some of the worst-hit nations and governments slowly lifting restrictions that have kept around half planet under some form of lockdown has fuelled a surge across world markets.
After crashing in the space of a few weeks, global equities are up about 20 percent since their trough in March, and analysts say the gains could continue.
JP Morgan Chase analysts wrote in a note: “While the collapse in economic activity is historic, so too is the global policy response to cushion the impact and support a recovery.
“We expect risky assets to continue to recover as economies reopen.” They did, however, expect gains to slow down.
Wall Street’s three main indexes all rallied more than one percent, with the Nasdaq even running into positive territory for 2020, despite data showing new claims for US unemployment benefits hit 3.2 million last week, taking the total to 33.5 million.
– Sobering outlook –
And the sentiment seeped into Asia.
Tokyo ended the morning 1.8 percent higher, while Hong Kong climbed 0.8 percent and Shanghai added 0.6 percent.
Seoul jumped more than one percent, while Sydney and Taipei both put on 0.8 percent. There were also gains in Wellington and Jakarta.
News that China and the US had committed to implementing a partial trade deal that was signed off in January and brought a pause to their debilitating trade war also provided much-needed support to markets.
China’s Vice Premier Liu He, who had led Beijing’s negotiations, held a call on Friday morning with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, according to Beijing.
The confirmation will ease concerns about a renewal of their standoff after Donald Trump hit out at China’s handling of the pandemic and warned of fresh tariffs.
The easing of lockdowns has provided a boost to beaten-down oil markets as traders bet on a pick-up in demand and easing of a supply glut that sent WTI into negative territory last month.
Both main contracts are on course to end the week with gains for the second time in succession.
Eyes are now on Friday’s release of government non-farm payrolls, which will provide the most comprehensive accounting of the impact of the crisis on the world’s top economy.
In the face of the widespread gains, David Hunt of PGIM gave a sobering analysis.
“We believe the equity markets are substantially overvalued relative to what we think is going on in the real economy,” he told Bloomberg TV.
“In order to believe today’s levels, you really need to believe we are going to have a sharp V-shaped recovery in earnings, starting in the third and fourth quarters of this year and certainly for 2021. We don’t think that is going to happen.”
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: UP 1.8 percent at 20,025.91 (break)
Hong Kong – Hang Seng: UP 0.8 percent at 24,176.27
Shanghai – Composite: UP 0.6 percent at 2,887.98
West Texas Intermediate: UP 2.0 percent at $24.02 per barrel
Brent North Sea crude: UP 1.3 percent at $29.84 per barrel
Euro/dollar: UP at $1.0850 from $1.0829 at 2050 GMT
Dollar/yen: UP at 106.32 yen from 106.26 yen
Pound/dollar: UP at $1.2406 from $1.2360
Euro/pound: DOWN at 87.46 pence from 87.60 pence
New York – Dow: UP 0.9 percent at 23,875.89 (close)
London – FTSE 100: UP 1.4 percent at 5,935.98 (close)