By Marc Jones
LONDON (Reuters) – Europe’s shares added to their best gains in almost a month as safety plays lost their lustre on Wednesday, with hopes of a rapid economic recovery holding firm against a resurgence of global coronavirus cases.
Data showed U.S. retail sales bounced back sharply in May, but new infections have hit record highs in six U.S. states, and China has cut flights and closed schools to contain a fresh outbreak in Beijing.
The theme of a strong global economic rebound “will need to be balanced against the 2nd wave COVID risks which are more difficult to assess, and we would argue investors have assumed to be perhaps more modest than in reality,” said MUFG’s head of research, Derek Halpenny.
Politics also lurked as a worry with India reporting 20 of its soldiers had been killed in clashes with Chinese troops at a disputed border site, while North Korea rejected a South Korean offer to send special envoys and said it would redeploy troops at the border.
That was enough to inject a tinge of caution into trading.
Japan’s Nikkei eased 0.5%, after jumping almost 5% on Tuesday for its biggest daily gain in three months.
Europe’s STOXX 600 trimmed its early gains too [.EU], but all the main indexes were still at least 0.6% higher, and U.S. S&P 500 futures were up 0.5% after spending much of the Asian session wavering either side of flat.
Trial results announced on Tuesday showed dexamethasone, used to reduce inflammation in other diseases such as arthritis, reduced death rates by around a third among the most severely ill COVID-19 patients admitted to hospital.
“It is one of the best pieces of news we’ve had through this whole crisis,” British Health Secretary Matt Hancock said.
MSCI’s broadest index of world shares crawled 0.2% higher, having climbed 2.2% the previous day to reclaim a good portion of the ground it lost in a relapse last week.
Chinese blue chips recovered from an early dip to finish steady despite Beijing’s worst resurgence in COVID-19 cases in four months.
That followed a robust session on Wall Street overnight. The Dow ended Tuesday up 2.04%, while the S&P 500 gained 1.90% and the Nasdaq 1.75%.
Hopes for recovery had been bolstered by the data showing U.S. retail sales data jumped by a record 17.7% in May, recovering more than half the losses of the previous two months, though industrial output still lagged.
The Trump administration was also reportedly preparing an up-to $1 trillion infrastructure package, something that was initially promised more than three years ago.
World stocks and oil vs coronavirus cases https://fingfx.thomsonreuters.com/gfx/mkt/jznvnbwglvl/Pasted%20image%201592395320245.png
OVER THE WORST?
“There is little doubt that the global economy bottomed in April and is poised to post record-high growth rates over May and June, strongly lifting 3Q GDP above its 2Q trough,” wrote economists at JPMorgan.
“But questions about the extent of lasting damage will have to wait for a number of months before being resolved.”
Federal Reserve Chair Jerome Powell cautioned that output and employment would remain well short of their pre-pandemic levels for a long time, so there was a “reasonable probability” that more policy support would be needed.
All the talk of recovery caused headwinds for sovereign bonds.
Thirty-year Treasury yields were up 2 basis points at 1.55%, having risen by the most in a month on Tuesday, while 10-year German Bunds led similar moves across Europe. [GVD/EUR]
The focus there was also turning to Thursday’s latest European Central Bank funding round of cheap long-term loans, which will see banks in effect paid to gobble up three-year funding.
“The tension between better economic data and rising COVID-19 cases continues to drive market volatility,” said Antoine Bouvet, senior rates strategist at ING in London.
The dollar bounced modestly from recent three-month lows to stand at 96.978 against a basket of currencies.
The dollar was up a touch on the Japanese yen at 107.34, while the euro stood at $1.1244, off its recent top of $1.1422. [/FRX]
In commodity markets, gold was stuck at $1,717 and well within the $1,670/$1,764 range of the past few weeks.
Oil prices swung in and out of the red amid an increase in U.S. crude inventories. They had climbed 3% on Tuesday after the International Energy Agency (IEA) raised its oil demand forecast for 2020. [O/R]
Brent crude futures were last at $40.45 a barrel having slithered between $41.46 and $40.06 a barrel, while U.S. crude dipped 60 cents to $37.70.
(Additional reporting by Dhara Ranasinghe in London; editing by John Stonestreet and Kevin Liffey)