World equity markets inch higher, bonds dip on hopes of recovery

World equity markets inched higher and safe-haven bonds fell on Tuesday as stronger economic data from China and upbeat corporate earnings in Europe overshadowed concerns about a potential second wave of coronavirus infections.

Stock markets have rebounded sharply in recent weeks as the spread of the novel coronavirus was curbed in the largest economies of Asia and Europe, while parts of the US economy began to reopen after weeks of lockdowns.

“We have had a rally that has not been loved by everybody,” said Hans Peterson, global head of asset allocation at SEB Investment Management. “That rally might continue for a while longer, but we have probably gone on to a bit of a consolidation phase for now,” he said, as investors pause to assess how quickly the global economy can recover.

MSCI’s gauge of stocks across the globe gained 0.39%, following modest advances in Europe and slight losses in Asia.

In early trading on Wall Street, the Dow Jones Industrial Average rose 149.05 points, or 0.62%, to 24,371.04, the S&P 500 gained 13.75 points, or 0.47%, to 2,944.07 and the Nasdaq Composite added 51.42 points, or 0.56%, to 9,243.77.

“Investors are more focused on the path ahead than the economic damage from the wake of the COVID-19 pandemic,” said Craig W. Johnson, technical market strategist at Piper Sandler & Co, referring to the disease caused by the new coronavirus.

“While the fundamental fallout is historic, expectations remain low, and the fiscal and monetary policy response has been unprecedented.” China reported its first rise in car sales in 22 months and the removal of tariffs on some US imports as part of a Phase One agreement to ease trade tensions with the United States.

In Europe, mobile operator Vodaphone beat earnings expectations and maintained its dividend while Logistics group Deutsche Post said it saw business normalizing in Europe.

Safe-haven assets such as the dollar and government bonds inched lower on hopes for an economic recovery. Benchmark 10-year notes last rose 1/32 in price to yield 0.7225%, from 0.726% late on Monday.

Late on Monday, the Fed said it would start purchasing shares of exchange-traded funds that invest in bonds, though policymakers also downplayed the likelihood of its interest rates being cut into negative territory.

An unexpected commitment from Saudi Arabia to deepen production cuts in June to help drain the supply glut caused by the coronavirus pandemic helped bolster oil prices.

US crude was up 6.3% at $25.66 per barrel and Brent was at $30.49, up 2.9% on the day.

Easing lockdowns and hopes for economic recovery helped to lift European and US stock markets as well as oil prices on Tuesday.

However, fears of a second wave of coronavirus infections weighed on Asian equities and the dollar.

As some of the worst-hit countries − including eurozone members Spain, Italy and France − take heart from slowing COVID-19 death and infection rates, they are gradually allowing businesses to reopen.

Most European markets were higher in afternoon trading, while Wall Street’s main indices rose after the opening bell sounded.

Briefing.com analyst Patrick J. O’Hare said there was not one particular piece of news pushing equities higher.

“Rather, it’s more of the same sentiment-driven action with links to reopening hope, monetary and fiscal policy support, the fear of missing out on further gains, and assumptions that things can only get better after having gotten so bad,” he said in a note to clients.

However sentiment was different in Asia over fears of a second coronavirus wave.

In Wuhan, the central Chinese city where the coronavirus outbreak first emerged, there have been reports of new infections, while South Korea announced its biggest spike in new cases for more than a month.

“A cluster of new cases... serves as a warning that the infection rates could spike again if lockdown measures are eased too quickly,” said Fawad Razaqzada, analyst at ThinkMarkets trading group.

Stock markets in Hong Kong, Sydney, Mumbai, Taipei, Singapore and Jakarta all closed down more than one per cent Tuesday.

Tokyo and Shanghai only dipped 0.1 per cent however, while there were gains in Wellington and Bangkok.

“While markets may eventually desensitise to mini-cluster outbreaks, provided death statistics remain static... at this stage, it does not lessen fears of a significant secondary spreader, which will undoubtedly weigh on consumer sentiment and hurt the rebound,” said AxiCorp analyst Stephen Innes.

He added that investors would have to expect such uncertainty until a vaccine for the virus is found.

Elsewhere Tuesday, oil prices jumped after Saudi Arabia said it would slash an extra one million barrels per day from its June output.

Kuwait and the United Arab Emirates also announced cuts after the pandemic caused global crude demand to plunge. After last month’s historic collapse in oil prices to below zero, the commodity has shot higher in recent weeks after top producers already agreed to slash output by a combined 10 million barrels per day.

Reuters