The rally in stocks continued in Asia on Thursday morning, after US stocks closed higher amid optimism that coronavirus infections in the country could be close to peaking.
Asia-Pacific stocks were broadly higher, with South Korea’s Kospi up 1.6 per cent and S&P/ASX gaining 2.2 per cent in Australia in morning trading. Japan’s Topix was down 0.4 per cent.
The moves came as US stock indices extended their rally on Wednesday. The benchmark S&P 500 closed 3.4 per cent higher, despite the weaker earlier performance of European stocks, which wavered after eurozone finance ministers failed to reach a deal on a common response to the pandemic.
The tech-heavy Nasdaq Composite was up 2.6 per cent.
US virus cases increased 8.1 per cent on Tuesday, marking a fifth straight day of slower growth. The absolute number of new cases rose by almost 30,000, but some analysts hoped Wednesday’s tally could be the high-water mark.
“A week from now, we think confirmed-case growth will be about 26,000 per day [and] in two weeks’ time we expect consistent sub-20,000 and falling,” said Ian Shepherdson, chief economist at Pantheon Economics.
Renewed hopes for oil production cuts helped fuel the rally, with a late surge in crude prices driving gains in energy shares.
There was also support from the release of the Federal Reserve’s minutes from two emergency meetings in March. The minutes showed most members favoured leaving interest rates near zero “until policymakers were confident that the economy had weathered recent events”.
Policymakers and investors have been closely scrutinising credit markets, hopeful for signs that businesses most in need of cash are once again able to borrow. While investment grade companies have issued debt in record amounts in the past month, only a handful of lower-rated groups have tapped junk bond markets since they went into a deep freeze in early March.
Investors demonstrated appetite for junk debt on Wednesday. The largest high-yield bond exchange traded fund, known by its ticker HYG, was up 2.6 per cent. Junk-rated Ferrellgas raised $575m in a bond issue on Wednesday afternoon at an interest rate of 10 per cent.
Earlier this week, casino operator Wynn Resorts and cash machine manufacturer NCR together borrowed $1bn in the junk debt market.
With its move on Wednesday, the S&P 500 has risen 23 per cent from its low on March 23, eclipsing the 20 per cent threshold that signifies a bull market.
There was a more pessimistic tone in Europe and Asia. The Stoxx Europe 600 was nearly flat. In London, the FTSE 100 shed 0.5 per cent, while Paris’s CAC 40 was up 0.1 per cent and the Dax 30 in Frankfurt was 0.2 per cent lower.
A 14-hour meeting between ministers broke up without agreement on Wednesday.
“The impression it gives the world is that Europe is disjointed, and that will reinforce the view that the overall response will be slower and less impressive than elsewhere,” said Kit Juckes, an analyst at Société Générale. “And impression, as well as optics, matter.”
Equities worldwide had gained ground earlier in the week as investors welcomed signs that sweeping restrictions on movement in the US and Europe were proving effective in slowing the spread of coronavirus. But optimism has not always proved resilient, with little clarity yet on how quickly those restrictions can be lifted and fears remain about the economic impact of the pandemic.
On Wednesday, government bond prices fell moderately after gains earlier in the day The yield on US 10-year Treasuries — which moves inversely to price — was up 0.03 percentage points at 0.764 per cent.
Oil traded higher as the market weighed the prospect of a deal later this week between Saudi Arabia and Russia that would curb production and underpin the market. Four dozen House Republicans, in a letter to crown prince Mohammed bin Salman on Wednesday, said they would support “any reciprocal responses that the US government deems appropriate” if Saudi Arabia “fails to act fairly to reverse this manufactured energy crisis”.
Brent crude, the international oil benchmark, climbed to $33.59 per barrel in post-settlement trade, up 5.4 per cent.
G20 oil ministers are set to meet on Friday to try to find measures to support the global industry. Before that, Saudi Arabia and Russia are scheduled to meet on Thursday to address a feud over production that has flooded global markets with supply and halved the price of oil this year.
“We’re obviously set up for the next couple of days with very high expectations,” said Robert Rennie, global head of market strategy at Westpac.
Reporting by Myles McCormick in London, Thomas Hale, Alice Woodhouse and Daniel Shane in Hong Kong and Matthew Rocco and Eric Platt in New York
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