U.S. Stocks Open Higher, Extend Rally
May 27 2020 - 9:03AM
Dow Jones News
By Anna Isaac and Frances Yoon
U.S. stocks and European shares rose Wednesday on optimism that
economic activity is gathering steam and authorities may offer more
stimulus to bolster the recovery.
The S&P 500 rose 0.9%, adding to the gauge's 1.2% rally on
Tuesday The Dow Jones Industrial Average advanced 340 points, or
1.4%, after the New York opening bell. European stocks also ticked
higher, with the pan-continental Stoxx Europe 600 advancing
0.7%.
Investors are cheering signs that the White House and Congress
are considering more measures to blunt the impact of historic
levels of unemployment on the economy. The Trump administration is
examining proposals to provide cash incentives to encourage
unemployed Americans to return to work, a top economic adviser said
in an interview on Fox News.
"U.S.-China tension has taken a back seat," said Edward Park,
deputy chief investment officer at Brooks Macdonald. "A lack of
major escalation means markets are more focused on central bank
interventions, the levels of liquidity on offer, and economic
recovery as countries emerge from lockdowns."
European authorities are also likely to step up stimulus
measures, with the European Central Bank probably boosting its
bond-buying programs and top officials working toward an agreement
on a recovery fund, according to Florian Hense, an economist at
Berenberg Bank.
The European Commission is proposing a 750 billion euro ($827
billion) recovery fund in a "turning point" in the response to the
crisis, Paolo Gentiloni, the European economy commissioner, tweeted
on Wednesday. The euro rose 0.3% against the U.S. dollar.
"It's given the euro a boost. Is the package amazing? No. Is it
good? Yes. The most important part of the support is the grants
component versus what's loans, and the weighting of it to
particular countries. There are lots of moving parts and it needs
unanimous support from member states," said Jordan Rochester,
foreign exchange strategist at Nomura Holdings.
Yields on Italian, Spanish and Greek government bonds moved
lower. Bond yields and prices move in opposite directions. German
bond yields meanwhile climbed, with the yield on the benchmark
10-year bund rising to minus 0.399% from minus 0.428% Tuesday.
The yield on the benchmark 10-year U.S. Treasury edged up to
0.721%, from 0.697% Tuesday.
Among European stocks, car makers were some of the biggest
gainers. French President Emmanuel Macron on Tuesday evening said
his government planned to spend billions of euros to prop up the
country's auto industry amid a collapse in car purchases caused by
the coronavirus crisis on Tuesday evening. Renault rose over 17% in
Paris, while Peugeot climbed 8.5%.
"It's the biggest automotive intervention in history," said
Demian Flowers, head of automotive research at Commerzbank. But the
impact on stocks could be short-lived, based on the experience of
2009, Mr. Flowers said. Incentive programs for consumers can be
temporarily effective, bringing forward purchases rather than
building sustained demand.
The main gauge for U.S. crude-oil prices edged down 1.4% to
$33.86 a barrel, after rising for seven of the past eight sessions.
Russian government officials have signaled that the country may
hold off on committing to any extended production cuts ahead of a
June meeting among major oil exporters, strategists at ING wrote in
a note to clients.
In Asia, the main equity benchmarks reflected mixed sentiment by
the close of trading. Japan's Nikkei 225 gained 0.7%, while
Australia's S&P/ASX 200 was little changed. China's Shanghai
Composite drifted 0.3% lower.
Investors are buying back assets that they sold off at the
height of the pandemic, according to Steve Englander, head of North
America macro strategy and Group of 10 currencies at Standard
Chartered Bank.
"There is some confidence in markets that the worst has passed
with the disease and that a worst-case scenario -- where, for
example, we are locked up for six months -- is now assigned a lower
probability," Mr. Englander said.
But financial markets are still fragile, said Daniel Gerard,
senior global multiasset strategist at State Street Global Markets.
Investors are watching developments on issues such as the pandemic,
including prospects for vaccines, and U.S.-China relations, he
said.
"It's hard enough in this pandemic to get trade going on because
of an uneven recovery," Mr. Gerard said. "If we add complications
of the trade war, it will delay a recovery."
The prospect of renewed unrest in Hong Kong is adding to growth
concerns for some heavyweight components of the city's Hang Seng,
such as financial stocks and developers, according to Mr. Gerard.
The index ended the day down almost 0.4%.
Write to Anna Isaac at anna.isaac@wsj.com and Frances Yoon at
frances.yoon@wsj.com
(END) Dow Jones Newswires
May 27, 2020 09:48 ET (13:48 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.