Wall Street closed higher as healthcare shares rallied and Brent crude breached $30 a barrel for the first time since mid-April.
The S&P 500 climbed 0.9 per cent, having trimmed its gains in afternoon trading. The Nasdaq Composite was up 1.1 per cent, leaving the tech-heavy index about 1 per cent away from entering positive territory for 2020.
The healthcare sector was the top performer in the S&P 500 after Pfizer said it had begun human testing for a potential coronavirus vaccine, while Regeneron Pharmaceuticals said an experimental treatment might be ready by the autumn.
The cautious reopening of economies has helped buoy markets. Countries such as Spain, Italy and India have tentatively eased lockdown measures this week, allowing some businesses to reopen. Austria has reopened stores while Denmark has already sent children back to school. In the US, more states have begun the process of restarting their economies. California, the largest state by gross domestic product, will allow some retailers to reopen with restrictions later this week.
Hopes that exits from lockdowns will boost crude demand have underpinned a rebound in oil prices. Brent added 13.9 per cent to settle at $30.97 a barrel, rebounding from a drop to less than $16 a barrel last month. West Texas Intermediate was up 20.4 per cent at $24.56 a barrel, the US marker’s fifth consecutive day of gains and nearly doubling its value from a week ago.
“The market is still vulnerable but now one thing is clear, the demand bottom is behind us, and this is manifesting in oil prices which are on the rise,” said Per Magnus Nysveen at consultancy Rystad Energy. Analysts at RBC Capital Markets also noted that congestion data showed US vehicle traffic levels had already rebounded off their lows.
Donald Trump, the US president, who has sought to boost prices through a push for global supply cuts welcomed the rally. “Oil prices moving up nicely as demand begins again!” he wrote on Twitter.
But with consumption still well below levels at the beginning of the year and storage capacity continuing to fill, some analysts are concerned that crude prices may yet slip back.
“Many market participants believe there is light at the end of the tunnel,” said Giovanni Staunovo, an analyst at Swiss bank UBS. “But while the inflection point appears near, we would describe the current environment as the darkest hour just before the dawn. With oil inventories still increasing, crude oil prices remain vulnerable to renewed setbacks.”
Brent contracts for delivery this summer strengthened relative to those for delivery at the end of the year, narrowing the discount between the two to just over $4 a barrel.
Contracts for delivery this summer had reached a discount of more than $13 a barrel at the end of April, such was the oversupply in the market. Traders said the move to a smaller discount was a strong indication that Brent’s strength was driven by more than just speculators trying to pick the bottom of the market.
The uplift in market sentiment spilled over into European and Asian equities.
The Stoxx Europe 600 was up 2.2 per cent, while London’s FTSE 100 and Frankfurt’s Dax gained 1.7 per cent and 2.5 per cent, respectively.
Elsewhere in Europe, the euro and Italian bonds sold off after Germany’s constitutional court called on the European Central Bank to justify its bond-buying programme. While the court found the ECB’s purchases of public sector debt were legal, it asked that it review whether they were “proportionate” in pursuit of its monetary policy objective.
The single currency fell as much as 0.7 per cent against the dollar to $1.0827 — its lowest level in a week — before recovering slightly in the afternoon.
Investors also moved out of Italian bonds, worried about potential constraints on the ECB’s ability to expand its debt purchases. That widened the spread between 10-year Italian and German borrowing costs — a key measure of country risk in the eurozone — by 0.143 percentage points to 2.46 per cent.
Asian equities made modest gains overnight, with markets in Japan, China and South Korea closed for public holidays. Hong Kong’s benchmark Hang Seng closed up 1.1 per cent while Australia’s S&P/ASX 200 rose 1.6 per cent.
Additional reporting by David Sheppard in London
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