Equities rise further as recovery hopes offset second wave fears

London, United Kingdom | AFP | Stock markets extended gains Wednesday, although wins were far more modest than the strong rally seen in the previous session, as traders weighed coronavirus treatment and economic recovery hopes against fears of a second wave of COVID-19.

In afternoon trading, London and Frankfurt were both up around half a percentage point, while Paris jumped 1.1 percent.

Hong Kong closed up 0.6 percent but Tokyo fell 0.6 percent.

Wall Street opened higher, with the Dow adding 0.3 percent.

Oil prices retreated and the dollar traded mixed against its main rivals.

“Equity markets are showing modest gains… as the bullish sentiment from yesterday is lingering,” said CMC Markets analyst David Madden.

“The pandemic is still playing on traders’ minds but there is hope that dexamethasone — a low-dose steroid — might turn out to be a useful treatment.”

An Oxford University study has shown that dexamethasone could cut by one third the risk of death for coronavirus sufferers on ventilators.

It comes as the Federal Reserve and Bank of Japan have pledged more support for troubled businesses — amid reports of a fresh US stimulus worth $1.0 trillion and a worrying increase in infections from Beijing to Texas.

Optimism about the US economy was given an extra boost by data showing retail sales, crucial to any recovery, soared a forecast-busting 17.7 percent in May.

That came after figures showed a surprise jump in jobs last month. Data also showed a timid recovery in housing construction.

Still, Fed chief Jerome Powell, whose sobering summary of the outlook for the economy last week sparked a plunge across equities, warned in congressional testimony Tuesday that the recovery would take some time.

While some recent indicators have been favourable, he told lawmakers there was “significant uncertainty” about the outlook and unless consumers feel confident COVID-19 has been defeated, “a full recovery is unlikely”.

He added that the April-June quarter “is likely to be the most severe on record”.

But according to market analyst Patrick J. O’Hare at Briefing.com, investors are hearing another message from the Fed, and now believe equities are just going to continue to rise.

“This is the default thinking because the Federal Reserve has effectively brainwashed the market into believing that the Fed won’t let bad things happen insomuch as it relates to asset prices,” he said in a note to clients.

Analysts are warning of a market pull-back, after valuations surged recently on the back of government and central bank support and easing lockdowns.

The major threat to any rebound is a renewed surge of infections, which could slow the easing of restrictions and reopening of economies.

Aside from the coronavirus, investors were tracking developments on the Korean peninsula after the North blew up an inter-Korean liaison office on its side of the border Tuesday.

On Wednesday, Pyongyang threatened to bolster its military presence in and around the Demilitarized Zone and rejected an offer from South Korean President Moon Jae-in to send envoys for talks.

– Key figures around 1330 GMT –

London – FTSE 100: UP 0.5 percent at 6,273.60 points

Frankfurt – DAX 30: UP 0.6 percent at 12,390.17

Paris – CAC 40: UP 1.1 percent at 5,004.23

EURO STOXX 50: UP 0.8 percent at 3,269.61

New York – Dow: UP 0.3 percent at 26,376.01

Tokyo – Nikkei 225: DOWN 0.6 percent at 21,455.76 (close)

Hong Kong – Hang Seng: UP 0.6 percent at 24,481.41 (close)

Shanghai – Composite: UP 0.1 percent at 2,935.87 (close)

West Texas Intermediate: DOWN 1.2 percent at $37.93 per barrel

Brent North Sea crude: DOWN 0.9 percent at $40.60 per barrel

Euro/dollar: DOWN at $1.1245 from $1.1263 at 2100 GMT

Dollar/yen:  DOWN at 107.29 yen from 107.31

Pound/dollar: DOWN at $1.2556 from $1.2570

Euro/pound: UP at 89.59 from 89.57 pence