Equities began the week on the front foot as signs of support measures from China’s central bank helped investors put to one side concerns that new coronavirus outbreaks could undermine efforts to restart the global economy.
In Asia Pacific trading on Monday, Japan’s benchmark Topix index was up 1.6 per cent, Hong Kong’s Hang Seng climbed 2 per cent and Australia’s S&P/ASX 200 rose 1.7 per cent. China’s CSI 300 of Shanghai- and Shenzhen-listed stocks gained 0.2 per cent.
Investor sentiment was bolstered by the People’s Bank of China’s announcement over the weekend that it would lower real lending rates and “place support for [the] recovery of the real economy in a position of greater priority”.
Jeffrey Halley, senior Asia-Pacific market analyst at Oanda, said the PBoC’s move signalled its “intention to engage in more powerful policies to counter the slide in Chinese growth from the Covid-19 pandemic”. That “should be enough” to extend the recent rally in global equities, he added.
Futures markets pointed to a rise of 0.4 per cent for the S&P 500 when Wall Street trading begins later in the day. London’s FTSE 100 was expected to rise 0.9 per cent.
Equities have been buoyed in recent weeks by hopes that a gradual restart in global economic activity could fuel a broad rebound. The UK, France, Spain, Denmark and Norway are all set to lift some containment measures to ease the economic impact of the pandemic.
That optimism has allowed investors to brush off some of the most dismal economic readings on record. On Friday, the S&P 500 rose 1.7 per cent even as the US unemployment rate surged to a postwar high of 14.7 per cent.
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However, new virus outbreaks in South Korea, Germany and China have highlighted the challenges faced by governments seeking to loosen social restrictions, as millions of Europeans prepare for the tentative reopening of their economies.
Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management, said investors would need to see evidence that corporate earnings had hit a trough in order to be convinced that stock markets would not re-test the lows reached in March.
“To gain confidence in a bear market low, equity investors traditionally need some visibility into the scale of a recession’s damage to corporate profits,” Mr Schowitz said.
Oil prices edged lower. Brent crude, the international benchmark, was down 0.7 per cent at $30.76 a barrel and US marker West Texas Intermediate fell 0.5 per cent to $24.61.