Global stock markets extend gain on quick economic revival hopes

World stocks inched higher on Monday, adding to a 42% surge from their March lows, as a surprise jump in last week’s US employment data fuelled hopes of a quicker global economic recovery from the coronavirus pandemic.

The MSCI all-country world stocks index, which covers 49 markets around the world, was 0.1% higher and just 7% away from a fresh record high. The benchmark S&P 500 is within striking distance of turning positive for the year.

In Europe, a surge in travel and leisure stocks helped cap losses on the pan-regional index, which traded 0.2% lower after poor German and Chinese economic data.

Asia shares rose in a catch-up rally following Friday’s US jobs data but were again capped by the Chinese data, published on Sunday, which showed exports contracted in May.

German industrial output meanwhile slumped a record 17.9% in April and firms now expect a bumpy road ahead despite a massive stimulus package.

“European stocks are probably under pressure following weak China data overnight. However, we do not think this marks the end of the rally,” said Marija Vertimane, senior strategist at State Street Global Markets.

US S&P 500 futures were 0.5% higher, building on last week’s rally. Wall Street’s fear gauge remained solidly pinned below 30 points on encouraging economic data and central bank stimulus.

“We are beginning to see evidence of economic data improving gradually and thankfully no major secondary spikes in infections. We expect that to encourage investors to come back to the market,” Vertimane added.

Hopes of a quick recovery in the US could however be quashed by mounting wave of protests demanding police reform after the killing of a black man in Minneapolis.

YIELD CURVE CONTROL The US jobs data pushed the 10-year Treasury yield as high as 0.959% on Friday, a level not seen since mid-March. It last stood at 0.929%.

The rise in US yields puts more focus on the US Federal Reserve, which will hold a two-day policy meeting ending on Wednesday.

“Steepening of the US Treasury curve reflects to a significant extent high (bond) supply versus QE (quantitative easing),” Nikolaos Panigirtzoglou, strategist at JPMorgan, said.

“The Fed at $4-5 billion QE a day is not doing enough to offset supply. It would become more challenging for the Fed if the 10-year...yield approaches 1%.” Pointing to the spread between US two- and 10-year Treasury yields − an indicator of economic expectations − widening above 70 basis points to its highest since February 2018, Panigirtzoglou believes there is scope for Fed to introduce yield curve control measures. In Europe, yields on top-rated German government bonds dipped but remained near the more than two-month highs hit last week after the European Central Bank expanded its emergency stimulus scheme.

Brent crude climbed 1.5% to $42.93 per barrel. US West Texas Intermediate crude rose 1.3% to $40.08 a barrel.

The broad improvement in sentiment weighed on the safe-haven Japanese yen, which stood at 109.5 to the dollar, near Friday’s 10-week low of 109.85.

The euro changed hands at $1.1303, after touching a three-month high of $1.1384 on Friday.

Gold gained on Monday as buyers took advantage of cheaper prices after the metal dropped to a one-month low at the end of last week, although safe-haven demand remained subdued as a jump in US employment boosted hopes of a swift economic recovery.

Spot gold was 0.7% higher at $1,696.37 per ounce by 0807 GMT, having dropped as much as 2.4% on Friday after data showed US nonfarm payrolls increased by more than 2.5 million jobs last month - compared with consensus estimates for a fall of 8 million jobs. US gold futures gained 1% to $1,700.30. “The narrative around the unemployment data presents a whole smorgasbord of risks to gold going forward, and the upside is going to be quite limited,” said Stephen Innes, chief market strategist at financial services firm AxiCorp.

“Gold is going to struggle to clear the $1,700 level again.” The strong jobs data bolstered demand for risky assets like stocks, which advanced on Monday. Market participants are now waiting for the US Federal Reserve’s two-day policy meeting ending on Wednesday, though they have stopped pricing in the possibility of negative rates after the surprise recovery in employment.

“Gold and silver continued to recover this morning as some physical/retail bargain hunters had some pent up demand at the lower levels,” MKS PAMP said in a note.

However, given the increase in US jobs and the likelihood that this trend will be replicated in other countries, there is further scope for more immediate downside, MKS added.

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dipped 0.4% on Friday. Speculators also cut their bullish positions in COMEX gold in the week to June 2.

Agencies