Global shares rose on Friday as indications that the coronavirus crisis is easing in Europe offset concerns over fresh outbreaks in the US.
Wall Street remained under pressure as the S&P 500 wiped out its gains from the previous day to open 0.5 per cent per cent lower.
The Stoxx Europe 600 index climbed 0.8 per cent in early afternoon trading, its third day of gains this week as the region-wide benchmark headed for its best quarterly performance in five years. But a second-quarter 13 per cent rise, buoyed by encouraging news this week on the eurozone’s economy, would mark only a partial rebound from the 23 per cent decline from January to March.
Friday’s advance in Europe comes on the back of an increase in most Asian markets. Stocks in London, Frankfurt and Paris followed suit, as markets were caught between improving economic data in Europe and the rising case count in the US.
The US Federal Reserve said on Thursday it would cap share buybacks and dividends by America’s biggest banks after stress tests showed Covid-19 could trigger $700bn of loan losses and push some lenders close to their capital minimums.
Shares in JPMorgan Chase, Bank of America, Wells Fargo and Citigroup fell between 2 and 4 per cent at the open on Friday. The price moves reverse gains made a day earlier that were prompted by a decision by regulators to relax certain pre-financial crisis rules.
“Equities will surely remain under pressure so long as the worrying resurgence in new coronavirus cases in the US continues unchecked,” analysts at Capital Economics said in a note. “But if outbreaks can be controlled across the world’s largest economies without reinstating tough nationwide lockdowns, we think that equities will comfortably outperform again.”
BofA analysts concur. “The more the US virus numbers deteriorate, the more the market will probably doubt the sustainability of the recovery,” they said in a note.
Still, a slower case count in many European countries has lifted hopes for a recovery, BofA said, as it expects confidence to improve in the eurozone over the next few weeks.
“While higher US virus numbers could weigh on market sentiment, it would be highly unusual for asset prices not to respond to such a strong improvement in macro momentum,” they added. BofA forecasts “are consistent with a further 15 per cent upside for the Stoxx 600 . . . by November”. The bank’s analysts forecast outperformance, for example, in the banking, energy and mining industries.
Markets have steadied after a wobble on Wednesday that was prompted by indications the Covid-19 outbreak in several US states was worsening. The situation remained fraught, with Texas, Florida and California reporting 5,000 new coronavirus infections on Thursday. Texas was forced to halt its reopening plans, following similar steps taken by North Carolina.
Wall Street sentiment has been bolstered, however, by the expectation of further stimulus if reimposed lockdowns or changes in consumer behaviour due to fresh outbreaks knock the nascent economic recovery off course.
“The market is being supported by hope — hope of more stimulus both from the US government and, if required, from the Federal Reserve,” said Derek Halpenny, an analyst at MUFG.
Emmanuel Cau, head of European equities strategy at Barclays, said China and Europe had managed to avoid large flare-ups even as data suggest travel was “rebounding fast”.
“Until a vaccine becomes available, flare-ups in virus cases will probably keep investors on their toes, but our assumption is that governments are now more prepared to handle the pandemic and have little appetite to reinstall full lockdowns,” he said.
Christine Lagarde, the European Central Bank president, added to the positive mood on Friday by saying the eurozone was “probably past the lowest point of crisis”.
She added the caveat, though, that the economic recovery from the pandemic hit would be “restrained” as households save instead of spending. Furthermore, some airlines and hotels would suffer “irredeemable” damage, warned Ms Lagarde.
In the Asia-Pacific region, Japan’s Topix gained 1 per cent, with the Australian ASX/200 gauge up 1.5 per cent. South Korea’s Kospi rose 1.1 per cent.
Oil prices were mixed, with Brent crude, the international benchmark, adding 0.2 per cent to $41.13 a barrel, while West Texas Intermediate, the US marker, fell 0.2 per cent to $38.63.