European equities shifted higher in morning trade, building on Monday’s gains, as a cautious feeling of optimism rippled through global stock markets that the spread of coronavirus was decelerating.
The continent-wide Stoxx Europe 600 added 2.4 per cent by mid-morning with a similar gain for London’s FTSE 100, while the CAC 40 in Paris was up 3.1 per cent and Frankfurt’s Dax 30 was up 3.7 per cent. Wall Street was set to open higher, too, with S&P 500 futures pointing to a rise of 2.8 per cent for the US benchmark stock index.
The positive mood in Europe mirrored that in Asia trading, where equity markets climbed for a second day, and followed a US rally on Monday that saw the S&P 500 surge 7 per cent — its best day in a fortnight.
“The near-term improvement in investor sentiment has been mainly driven by building evidence that the lockdown measures are proving effective at slowing the spread of Covid-19,” said Lee Hardman, currency analyst at MUFG.
Sweeping restrictions on movement across Europe’s major economies appear to be proving effective, with reductions in the number of deaths and new cases in Italy, Spain, France and Germany. As a result, the so-called coronavirus curve, a measure of how rapidly the disease is spreading, appears to be flattening.
This has raised hopes that lockdowns will soon be eased, offering some respite to flagging economies. Austria is set to be the first European country to ease strict quarantine measures with the opening of some shops next week.
Japan’s Topix closed almost 2 per cent higher, while China’s CSI 300, which was closed for a public holiday on Monday, rose 2.3 per cent.
Donald Trump, US president, said in a tweet on Monday that there was “light at the end of the tunnel”, after New York on Sunday recorded its first reduction in daily cases since the crisis began. Wall Street’s gains on Monday marked the S&P 500’s eighth best day since the end of the second world war.
But Paul Donovan, chief economist at UBS, said the lack of available and reliable data on how effective government interventions have been makes it difficult to accurately predict the strength of any economic bounceback.
“For the time being markets are likely to be more reactive and sentiment-driven rather than predictive,” he said. “The idea that financial markets are always discounting known information about the future is fine in theory. In practice, in these circumstances, that fine ideal probably does not apply.”
Government bonds sagged as investors moved back into riskier assets. The US 10-year government bond yield rose 0.06 percentage points to 0.74 per cent as its price fell.
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Oil prices also rose on Tuesday, resuming a rally on hopes that Saudi Arabia and Russia would reach a deal that would reduce supply and underpin sliding prices.
G20 oil ministers are due to meet on Friday — the first time the group has met to deal specifically with energy issues — fuelling optimism a deal can be hammered out to cut output by at least 10m barrels a day.
Brent crude, the international oil benchmark, added 2.5 per cent to trade at $33.86 a barrel.