AFP, Reuters London
Stock markets recovered from early weakness yesterday as optimism about a fresh US economic stimulus package crept back into trading rooms.
Democrats and Republicans are battling to hammer out a new package to help the US economy recover from the ravages of the pandemic, with analysts pointing to reports claiming good progress had been made.
“There’s a big desire from both parties to get some kind of stimulus passed.
I think the market is expecting that,” said Bob Phillips, at Spectrum Management Group.
The dollar weakened on expectations of more money being injected into the economy.
Adding to optimism about a recovery, already fuelled by upbeat data in recent days, were forecast-beating US factory order numbers published yesterday.
Europe’s stock markets ended the session mostly higher, the main exception being Frankfurt, having clawed back earlier losses.
On Wall Street, the Dow had added over 100 points by the end of the New York morning, after reversing a weaker opening trend.
“US stocks are tacking onto yesterday’s strong start to August,” said analysts at Charles Schwab.
“Monday’s plethora of upbeat global manufacturing reports is being followed by today’s stronger-than-expected June US factory orders data, while Friday’s July non-farm payroll report looms,” they said.
Earlier yesterday, Asian stocks had rallied on the back of Wall Street’s strong overnight performance which saw the Nasdaq establish a new record high.
There was some relief in markets that “on the virus front, encouraging signs are emerging as many hotspots are seeing slow improvements”, noted Edward Moya at OANDA.
“New cases and hospitalisations are declining in most second wave states, but this will need to improve more strongly for optimism to grow,” he said.
Whatever desire there was to take new risks with stocks was being held in check by uncertainty, including about the shape of any economic recovery, analysts said.
“The composition of China’s economic recovery offers a roadmap to the rest of the world that is not especially bullish for a consumer-driven rebound,” said AxiCorp’s Stephen Innes.
“It’s easier to normalise the supply-side of the economy than the demand side in a post-pandemic-shock environment.”
German drugs and pesticides group Bayer slipped 2.4% as moves to settle lawsuits over its Roundup weedkiller contributed to a 9.5bn euro ($11.2bn) loss.
Of the 223 companies listed on the STOXX 600 that have reported so far, nearly 62% have topped analysts’ much-reduced expectations for profits, according to Refinitiv data.
In a typical quarter, 50% beat earnings estimate.
“Overall, the decline (in earnings) isn’t quite as large as people had feared.
However, that is not feeding through into people upgrading their estimates for the rest of the year,” said Matt Siddle, portfolio manager, Fidelity Funds European Growth.
“The rate of how rapidly sales were recovering in June — because that was a much better guide for what will happen in the second half of the year — has not tended to give enough confidence to upgrade.”
After a recovery from March lows that has seen the STOXX 600 climb nearly 36%, markets have wobbled in recent weeks on concerns about a resurgence in coronavirus cases.
Doubts over the progress of a US coronavirus aid package and a diplomatic tussle over Chinese tech companies’ operations in the United States also kept investors on edge.
Banking-heavy Italian and Spanish indexes were both higher, as data showed Italy standing out as the main beneficiary of the European Central Bank’s efforts to support a virus-stricken eurozone economy.
Intesa Sanpaolo, which just sealed a takeover of smaller rival UBI, gained 5.0% after saying it would seek clearance to return more cash to shareholders.
In London, the FTSE 100 closed up 0.1% to 6,036.00 points; Frankfurt — DAX 30 ended down 0.4% to 12,600.87 points; Paris — CAC 40 closed up 0.3% to 4,889.52 points and EURO STOXX 50 closed up 0.2% to 3,254.29 points yesterday.
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