Global Markets – Sentiment Improves After Promising News On A Coronavirus Treatment And Fed Assurances On Lasting Economic Support

Stocks rose Thursday, following a rally in U.S. markets on Federal Reserve assurances it will continue with its stimulus programs and on promising news on a coronavirus treatment.

S&P 500 futures inched up 0.5%, suggesting U.S. markets could open higher. In Europe, the pan-continental Stoxx Europe 600 added 0.6%.

Stock benchmarks in China and Japan rose. The Shanghai Composite Index closed up 1.3% and Japan’s Nikkei 225 ended 2.1% higher. Markets in Hong Kong and South Korea were shut for a holiday.

Sentiment was boosted Wednesday by news from Gilead Sciences that a clinical trial evaluating its drug remdesivir in coronavirus patients had concluded with a positive result.

The Federal Reserve left interest rates unchanged, near zero, and didn’t announce any new measures at the close of a two-day policy meeting. However, it pledged to use “its full range of tools to support the U.S. economy in this challenging time.”

“There’s a good chance that the Fed will put in place more quantitative easing programs in the future and stay committed to keeping interest rates low for some time longer,” said Eli Lee, head of investment strategy at Bank of Singapore. He expects the near-zero interest rate to continue for the next two to three years.

Since mid-March, the Fed has bought nearly $2 trillion in Treasury and mortgage securities, eclipsing any of its similar programs between 2008 and 2014. The major U.S. stock indexes have rallied between about 12% and 15% in April on the back of the supportive Fed actions.

“The rally is a bit too far and too fast,” said Mr. Lee. The poor economic data as indicated by a sharp 4.8% contraction in the U.S. economy for the first quarter of this year suggests things will get far worse before they get better, he added.

Ong Zi Yang, senior macro analyst at FSMOne.com in Singapore, said the V-shaped recovery of the markets has led to a disconnect between the financial markets and the economic realities.

“They will continue to diverge with the Fed pumping in so much money,” he said. But he cautioned such supportive measures could be damaging in the long run as a lot of companies that aren’t operating efficiently might be getting help they don’t deserve.

The U.S. has reported nearly 1.04 million infections and more than 60,900 deaths from the new coronavirus, according to Johns Hopkins University. Globally, more than 3.19 million people have been infected, and the death toll stands at more than 227,000.

China, the first to reopen its economy after emerging from the coronavirus crisis, reported a slower expansion in factory activity in April, after a strong rebound in March, due to weak external demand.

Brent crude, the global gauge of oil prices, jumped 5.5% to $25.57 a barrel while U.S. crude surged 10.4% to $16.63 a barrel. Fears have eased about the U.S. running out of storage space, after inventories didn’t climb as quickly as expected.

The yield on the 10-year U.S. Treasury note fell to 0.601%, before drifting up to 0.614% in early morning trading. Yields fall as bond prices rise.







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