/

Stocks climb, as markets hope for a return to ‘normal’

2692 views
2 mins read

By Han Tan, Market Analyst at FXTM

Asian stock markets are a sea of green, while US equity futures are also pointing to more gains for Wall Street to close the week. Risk appetite is being lifted by the rising hope that economies can be restarted in the not-so-distant future. Investors have also been encouraged by a report suggesting a potential coronavirus treatment from US drug company Gilead had shown positive results in a clinical trial.

Gold is down by 1.4% and trading below the $1700 psychological level, 10-year US Treasury yields have risen by over 5%, while USDJPY has strengthened by about 0.2% to trade around 107.7.

Despite Thursday’s dismal data dump, including more record US jobless claims, investors are pinning their hopes on plans to ease lockdown measures. US President Donald Trump has set out guidelines that allow social distancing rules to be lifted in as soon as four weeks, smaller shops in Germany are set to reopen, while China has already embarked on its road to recovery over the last few weeks.

Set against such optimistic anticipations, investors are paying less attention to the economic carnage left in Covid-19’s wake, including headline-grabbing prints such as China’s Q1 GDP shrinking by 6.8% to post its first contraction since at least 1992 and US jobless claims rising to 22 million in the four-week period ending April 11, which effectively wipes out all US jobs added since mid-2009.

 

Gains in risky assets may be ignoring underlying concerns

The prudent investor would, however, be mindful that the road to economic recovery remains tentative at this point in time. Such concerns are laid bare in the Dollar/Asia complex, with most Asian currencies posting a loss against the Greenback for the week.

A global recession remains the base case for the year and the economic outlook remains clouded with uncertainties. While policymakers are eager to limit the economic damage, the reopening of their respective countries could be upended by a swift resurgence of the coronavirus. The broad rollout of a Covid-19 vaccine is still the necessary catalyst for a return to life as it once was and would be the spark required for a sustained rally in risk assets.

 

Brent, WTI futures put in contrasting shifts

Brent futures are gaining 2% to push back towards $30, while WTI futures are lower by 1.3% and have sunk back below the psychologically-important $20 mark. Brent’s buoyancy is being invigorated by the joint statement by Saudi Arabia and Russia to take “further measures” to support Oil prices.

However, the US benchmark is being dragged lower amid a record collapse in fuel demand stateside, which threatens to send US inventories to a new record high in a matter of weeks. Such prospects are reportedly prompting the US administration to consider paying producers to keep crude in the ground.

Oil markets overall are still expected to struggle on this slippery slope as demand-side risks remain tilted to the downside.

However, if more of the world economy enacts plans to reopen and restores some sense of normality, that could help Oil prices find a firmer floor in May, aided by the OPEC+ supply cuts kicking in by then as well.

 

For information, disclaimer and risk warning note visit FXTM

FXTM Brand: ForexTime Limited is regulated by CySEC and licensed by the SA FSCA. Forextime UK Limited is authorised and regulated by the FCA, and Exinity Limited is regulated by the Financial Services Commission of Mauritius