European and Asian stocks rally on hope for coronavirus treatment

A historic contraction in China’s economy failed to halt a rally on Friday in European and Asian stocks as investors pinned their hopes on the emergence of a potential coronavirus treatment. 

Europe’s Stoxx 600 was up 2.6 per cent in late morning trade, putting it on track to end the week higher after a bumpy few days. There were gains of 3.1 per cent for Frankfurt’s Dax 30, 3.6 per cent for Paris’s Cac 40 and 3.1 per cent for London’s FTSE 100.

The rise came after a report suggested a drug developed by Gilead had shown positive results in a clinical trial, giving investors hope that a treatment could ease the pandemic and open up the global economy.

“Investors appear to be leaning on the encouraging news from the medical publication Stat, that a group of patients being treated in Chicago with a trial of Gilead’s drug remdesivir were ‘seeing rapid recoveries in fever and respiratory symptoms’,” said Jim Reid at Deutsche Bank.

Futures trade suggested Wall Street would follow suit, with the benchmark S&P 500 set for gains of 2.6 per cent when markets open in New York.

However, analysts warned against overreacting to the reports ahead of seeing the actual data and anticipated the positive sentiment would recede.

“We appreciate that the broader market is in a risk-on and glass-half-full environment and investors are looking for a good story,” said Michael Yee at Jefferies.

The gains followed a positive session in Asia which came despite official Chinese data on Friday showing that the world’s second-biggest economy shrank by 6.8 per cent year on year in the first quarter due to disruption caused by coronavirus-induced lockdowns, marking the first decline in gross domestic product since 1976.

But investors were unshaken by the news, with China’s CSI 300 index closing up 1 per cent and Hong Kong’s Hang Seng adding 1.6 per cent. Japan’s Topix climbed 1.4 per cent.

“It’s not actually a big miss compared to the market consensus,” said Michelle Lam, Greater China economist at Société Générale, of the first-quarter reading.

But Ms Lam warned that collapsing demand from China’s trading partners, which have imposed their own lockdowns, could weigh heavily on its economy in the second quarter. “We’re not sure about the size of the hit to [China’s] exports — all we know is it could be quite large,” she added.

On Wall Street overnight, the S&P 500 closed 0.6 per cent higher, even as economic data revealed another steep jump in US unemployment claims.

The benchmark is now up almost 30 per cent from its mid-March nadir, fuelled by indications that lockdown measures appear to be working and sweeping monetary and fiscal intervention. But analysts have warned the bounceback may struggle to sustain itself.

“The market may have run ahead of itself,” said analysts at Bank of America Global Research. 

“The macro support measures, in the best case, can only keep the economy alive during the ‘induced coma’. We still don’t know how much longer the lockdown will last, how long the exit plans will take and what lockdown measures will remain even when economies ‘open up’.” 

Meanwhile, US crude oil prices dropped to another 18-year low near $18 a barrel, with energy markets still under pressure from a record glut created by the pandemic, despite a landmark deal to cut global supply.

West Texas Intermediate was trading at $18.24, down 8.3 per cent on the day as traders bet oil storage will rapidly fill up globally. Brent crude, the international benchmark, was also steady at $27.84 a barrel, but it has lost 10 per cent this week.

In fixed income, the 10-year US Treasury yield climbed 0.03 percentage points to 0.639 per cent.

Additional reporting by David Sheppard in London